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 ... [Read more...]

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 ... [Read more...]

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 ... [Read more...]

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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.  ... [Read more...]

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 ... [Read more...]

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 ... [Read more...]

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”‘.  ... [Read more...]

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 ... [Read more...]

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The first 6 trading days of August have been bad for the major indices, but how variable is that across portfolios? To answer that, two sets of random portfolios were generated from the constituents of the S&P 500.  The trading days are 2011 August 1 — 5 and 8. The returns of the indices for … Continue ... [Read more...]

When dealing with transaction cost analysis, a stock’s volume is assumed to be stable or foreseeable.  However, there is different picture, then we are dealing with an illiquid stock. It is relatively easy to forecast the volume of a liquid stock, because trading volume has high autocorrelation – the volumes ... [Read more...]

Here are some additions to the previous post on S&P 500 correlation. Correlation distribution Before we only looked at mean correlations.  However, it is possible to see more of the distribution than just the mean.  Figures 1 and 2 show several quantiles: 10%, 25%, 50%, 75%, 90%. Figure 1: Quantiles of 50-day rolling correlation of … Continue reading → [Read more...]

I will be giving a presentation on “Optimal transaction cost” in Vilnius on  16  August. While preparing the presentation and looking for an optimal execution solution, a natural question arises: does the size of the trade affect stock market price? I’m sure, you would say 100 % yes. Well, you would be ... [Read more...]

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Ticker Sense posted about the mean correlation of the S&P 500. The plot there — similar to Figure 1 — shows that correlation has been on the rise after a low in February. Figure 1: Mean 50-day rolling correlation of S&P 500 constituents to the index. For me, this post raised a whole lot ... [Read more...]

Here’s a funny story – friend of my, avid gamer at that time, was going downhill on a bicycle when wonderful idea flashed his mind: I need to save the current status… Just in case if I crash, I will start again from the top of the hill. If you ... [Read more...]

If a particular prediction comes true, how surprised should we be? The prediction The page that sparked my curiosity tells of a prediction made a year ago that the S&P 500 would beat its historic high by the end of 2011.  It says that at the point the prediction was made, ... [Read more...]