Blog Archives

Predictability of kurtosis and skewness in S&P constituents

October 3, 2011
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Predictability of kurtosis and skewness in S&P constituents

How much predictability is there for these higher moments? Data The data consist of daily returns from the start of 2007 through mid 2011 for almost all of the S&P 500 constituents. Estimates were made over each half year of data.  Hence there are 8 pairs of estimates where one estimate immediately follows the other. … Continue reading...

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Time series equivalence of brains and markets

September 27, 2011
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Time series equivalence of brains and markets

fMRI data from 90 locations in the brain look somewhat like daily closing prices on 116 stocks if you squint just right. Marginal Revolution was nice enough to point to “Topological isomorphisms of human brain and financial market networks”. I’ve only just glanced through the paper.  I find it interesting, but I’m fairly skeptical.  The … Continue reading...

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Beta and expected returns

September 16, 2011
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Beta and expected returns

Some pictures to explore the reality of the theory that stocks with higher beta should have higher expected returns. Figure 2 of “The effect of beta equal 1″ shows the return-beta relationship as downward sloping.  That’s a sample of size 1.  In this post we add six more datapoints. Data The exact same betas of … Continue reading...

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Solve your R problems

September 12, 2011
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Solve your R problems

  download ‘The R Inferno’ Epilogue I’m not a lawyer, but here is my understanding of the rules should you want to extract images from this page: Most of the images are from istockphoto.com. You would need to pay for each image that you want to use. It is unlikely that Sandro Botticelli is going … Continue reading...

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A brief history of S&P 500 beta

September 8, 2011
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A brief history of S&P 500 beta

Data The data are daily returns starting at the beginning of 2007.  There are 477 stocks for which there is full and seemingly reliable data. Estimation The betas are all estimated on one year of data. The times that identify the betas mark the point at which the estimate would become available.  So the betas … Continue reading...

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Review of “Risk and Meaning” by Nicolas Bouleau

September 5, 2011
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Review of “Risk and Meaning” by Nicolas Bouleau

The subtitle is: Adversaries in Art, Science and Philosophy. Executive Summary Genius or madness? I haven’t decided. Irreversibility of interpretation The book drives home that once we decide how something is we can’t go back to our state of innocence. Figures 1 through 3 exhibit this idea via a randomly generated polygon.  Look at Figure … Continue reading...

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Realized beta and beta equal 1

August 30, 2011
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Realized beta and beta equal 1

What does beta look like in the out-of-sample period for the portfolios generated to have beta equal to 1? In the comments Ian Priest wonders if the results in “The effect of beta equal 1″ are due to a shift in beta from the estimation period to the out-of-sample period.  (The current post will make … Continue reading...

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The effect of beta equal 1

August 29, 2011
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The effect of beta equal 1

Investment Performance Guy had a post about beta equal 1.  It made me wonder about the properties of portfolios with beta equal 1.  When I looked, I got a bigger answer than I expected. Data I have some S&P 500 data lying about from the post ‘On “Stock correlation has been rising”‘.  So laziness dictated … Continue reading...

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Things I learned at useR!2011

August 25, 2011
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Things I learned at useR!2011

The title says “things” but conferences are mainly about people. Some of it can be serendipitous.  For example, one day I sat next to Jonathan Rougier at lunch because I had a question for him about climate models.  When Jonathan left, I started a conversation with the person on my other side.  That was most … Continue reading...

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Random input software testing

August 23, 2011
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Random input software testing

The usual approach to testing software is to create a specific problem and see if the software gets the correct answer.  Although this is very useful, there are problems with it: It is labor-intensive It almost totally neglects to test the code that throws errors There can be unconscious bias in the test cases created … Continue reading...

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