Blog Archives

The shadows and light of models

March 5, 2012
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The shadows and light of models

How wide is the darkness? Uses of models The main way models are used is to: shine light on the “truth” We create and use a model to learn how some part of the world works. But there is a another use of models that is unfortunately rare — a use that should be common … Continue reading...

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A minimum variance portfolio in 2011

February 29, 2012
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A minimum variance portfolio in 2011

2011 was a good vintage for minimum variance, at least among stocks in the S&P 500. Previously The post “Realized efficient frontiers” included, of course, a minimum variance portfolio.  That portfolio seemed interesting enough to explore some more. “What does ‘passive investing’ really mean” suggests that minimum variance should be considered a form of passive … Continue reading...

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Realized efficient frontiers

February 27, 2012
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Realized efficient frontiers

A look at the distortion from predicted to realized. The idea The efficient frontier is a mainstay of academic quant.  I’ve made fun of it before.  This post explores the efficient frontier in a slightly less snarky fashion. Data The universe is 474 stocks in the S&P 500.  The predictions are made using data from … Continue reading...

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What does ‘passive investing’ really mean?

February 20, 2012
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What does ‘passive investing’ really mean?

We know the words but what do they mean? Some definitions Here are some definitions of “passive investment management”. Investopedia says: A style of management associated with mutual and exchange-traded funds (ETF) where a fund’s portfolio mirrors a market index. Wikipedia says: Passive management (also called passive investing) is a financial strategy in which an investor (or … Continue reading...

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The BurStFin R package

February 16, 2012
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The BurStFin R package

Version 1.01 of BurStFin is now on CRAN. It is written entirely in R, and meant to be compatible with S+. Functionality The package is aimed at quantitative finance, but the variance estimation functions could be of use in other applications as well. Also of general interest is threeDarr which creates a three-dimensional array out … Continue reading...

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A slice of S&P 500 kurtosis history

February 13, 2012
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A slice of S&P 500 kurtosis history

How fat tailed are returns, and how does it change over time? Previously The sister post of this one is “A slice of S&P 500 skewness history”. Orientation The word “kurtosis” is a bit weird.  The original idea was of peakedness — how peaked is the distribution at the center.  That’s what we can see, … Continue reading...

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The US market will absolutely positively definitely go up in 2012

February 6, 2012
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The US market will absolutely positively definitely go up in 2012

The Super Bowl tells us so. The Super Bowl Indicator The championship of American football decides the direction of the US stock market for  the year.  If a “National” team wins, the market goes up; if an “American” team wins, the market goes down. Yesterday the Giants, a National team, beat the Patriots. The birth … Continue reading...

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The distribution of financial returns made simple

January 23, 2012
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The distribution of financial returns made simple

Why returns have a stable distribution As “A tale of two returns” points out, the log return of a long period of time is the sum of the log returns of the shorter periods within the long period. The log return over a year is the sum of the daily log returns in the year.  … Continue reading...

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How to search the R-sig-finance archives

January 19, 2012
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How to search the R-sig-finance archives

A not unusual part of a response on the R-sig-finance mailing list is: “Search the list archives.” In principle that makes sense.  In practice it might not be clear what to do.  Now it should be. The list The R-sig-finance mailing list deals with the intersection of questions about the R language and finance.  It … Continue reading...

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A slice of S&P 500 skewness history

January 16, 2012
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A slice of S&P 500 skewness history

How symmetric are the returns of the S&P 500? How does the skewness change over time? Previously We looked at the predictability of kurtosis and skewness in S&P constituents.  We didn’t see any predictability of skewness among the constituents.  Here we look at skewness from a different angle. The data Daily log returns of the … Continue reading...

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