Category Archives: Fund management in general
Scoping out the financial universe
Four hundred years ago today Galileo Galilei brought forth a new instrument. On 1611 April 14 Galileo did a demo of his telescope in Rome. That bit of glass changed our view of the universe. He saw four moons orbiting Jupiter. This was good evidence that the universe did not revolve around the earth. Here … Continue reading
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Unproxying weight constraints
It is common practice to have portfolio constraints like: wi ≤ 0.05 That is, the weight of each asset can be no more than 5%. Proxy for risk We think that is what we want to do because we are so used to doing it. But why should we care about the weight of assets? … Continue reading
Market beliefs
Friday was a day to fool others. Every day is a day to fool ourselves. Primed to know The video gives a great example of how knowing what to expect makes the expectation come true. The entire 13.5 minute talk is wonderful, but you can skip to about the 9 minute mark to experience the … Continue reading
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Tagged efficient market hypothesis, Michael Shermer
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Which way is the future?
In the Aymara language the past is in front and the future is behind. It is rare for languages (at least existing ones) to have the metaphor turned this way. But it makes sense to me — maybe it’s the quant in me. We can see the past, and the most recent past is the … Continue reading
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An investment lottery
Can fund managers capture money that is now gambled away? Investing versus gambling A clean, though imperfect, distinction between investing and gambling is: if the expected return is positive, it is investing if the expected return is negative, it is gambling Other views on gambling versus investing can be found here and here. An investing … Continue reading
Inflexible regime, inflexible prices
There is a deep connection between political mechanisms and economic mechanisms, at least according to Ajay Shah. Price flexibility Ajay Shah has a post called Jittery regimes fix prices. It is well worth reading the whole piece (which isn’t very long anyway). Here’s an excerpt: Flexible prices are constantly disruptive. Every day, there are a … Continue reading
Posted in Economics, Fund management in general, Quant finance
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Who are the innocent bystanders?
High volatility stocks are, in general, nonsensical. Who’s to blame? The high vol gamble Theory says that investors demand higher returns for higher volatility assets. Reality says that the most volatile stocks have the lowest expected returns. See, for example, The volatility puzzle solved? — specifically Figure 2. That this particular theory doesn’t hold means … Continue reading
The Super Bowl Indicator
The Super Bowl will take place on Sunday. This is the final game for American Football (if you have to ask, then: “No, not real football”). Not only is it a highlight in sports, it is also a financial highlight as it determines the fate of the US stock market for the year. You can … Continue reading
The mean reversion of Groundhog Day
February 2nd is Groundhog Day. If Punxsutawney Phil sees his shadow, then he goes back into his burrow and hibernates for six more weeks. Otherwise he predicts an early spring. It is really a mean reversion idea — current good weather means bad weather later, and vice versa. The other Groundhog Day Most people outside … Continue reading
Beware Mr Market
Thinking of the market as having a personality can be fun and educational. But it has a dark side as well. Benjamin Graham The idea of Mr Market was created by Benjamin Graham as a way of conveying the wisdom of fundamental analysis. Graham’s intentions were to make people act more rationally. Ironically, thinking of … Continue reading
