Blog Archives

The top 7 portfolio optimization problems

January 5, 2012
By
The top 7 portfolio optimization problems

Stumbling blocks on the trek from theory to practical optimization in fund management. Problem 1: portfolio optimization is too hard If you are using a spreadsheet, then this is indeed a problem. Spreadsheets are dangerous when given a complex task.  Portfolio optimization qualifies as complex in this context (complex in data requirements). If you are … Continue reading...

Read more »

Market predictions for years 2011 and 2012

January 2, 2012
By
Market predictions for years 2011 and 2012

A review of market predictions and results for 2011, and a calibration for 2012 predictions (of 19 equity indices plus oil). Previously One year ago the post “Revised market prediction distributions” presented plots showing the variability of various markets assuming no market-moving forces. The follow-up post “Some market predictions enhanced some of those plots with … Continue reading...

Read more »

R-specific review of blog year 2011

December 28, 2011
By
R-specific review of blog year 2011

Most popular posts Two of the ten most popular posts during the year were completely about R: The R Inferno revised (number 6) Solve your R problems (number 9) R played a role in the other eight top ten, and many of the rest of the posts as well. R The R Inferno was revised … Continue reading...

Read more »

Volatility estimation and time-adjusted returns

December 15, 2011
By
Volatility estimation and time-adjusted returns

Do non-trading days explain the mystery of volatility estimation? Previously The post “The volatility mystery continues” showed that volatility estimated with daily data tends to be larger (in recent years) than when estimated with lower frequency returns. Time adjusting One of the comments — from Joseph Wilson — was that there is a problem with … Continue reading...

Read more »

LondonR recap

December 10, 2011
By
LondonR recap

The biggest and perhaps best meeting yet. The talks James Long: “Easy Parallel Stochastic Simulations using Amazon’s EC2 & Segue”.  This was a lively talk about James’ package to use Amazon’s cloud to speed up a (huge) call to lapply.  The good part is that if you want to use Amazon as your cloud provider, … Continue reading...

Read more »

The volatility mystery continues

December 5, 2011
By
The volatility mystery continues

How do volatility estimates based on monthly versus daily returns differ? Previously The post “The mystery of volatility estimates from daily versus monthly returns” and its offspring “Another look at autocorrelation in the S&P 500″ discussed what appears to be an anomaly in the estimation of volatility from daily versus monthly data. In recent times … Continue reading...

Read more »

Alpha decay in portfolios

November 30, 2011
By
Alpha decay in portfolios

How does the effect of our expected returns change over time?  This is not academic  curiosity, we want to know in the context of our portfolio if we can.  And we can — we visualize the effect of expected returns in situ. First step The idea is to look at the returns of portfolios that … Continue reading...

Read more »

Asynchrony in market data

November 21, 2011
By
Asynchrony in market data

Be careful if you have global daily data. The issue Markets around the world are open at different times.  November 21 for the Tokyo stock market is different from November 21 for the London stock market.  The New York stock market has yet a different November 21. The effect The major effect is that correlations … Continue reading...

Read more »

Performance measurement is about decisions

November 16, 2011
By
Performance measurement is about decisions

The return of a hypothetical fund was 17.9% in 2010.  We want to know if that is good or bad. The benchmark method The assets in the portfolio are constituents of the S&P 500, so we can compare our fund return to the return of the index. Figure 1: 2010 returns of: the fund and … Continue reading...

Read more »

Another look at autocorrelation in the S&P 500

November 11, 2011
By
Another look at autocorrelation in the S&P 500

Casting doubt on the possibility of mean reversion in the S&P 500 lately. Previously A look at volatility estimates in “The mystery of volatility estimates from daily versus monthly returns” led to considering the possibility of autocorrelation in the returns.  I estimated an AR(1) model through time and added a naive confidence interval to the … Continue reading...

Read more »