Predicting the future has never been easy, but the standard today is the same as in ancient times: does the prediction come true? As an ancient Hebrew author wrote, “When a prophet speaketh, … if the thing follow not, nor come to pass, … the prophet hath spoken it presumptuously: thou shalt not be afraid
Continue reading How have 2014 market prophets fared?
When numbers of any sort are presented, whether in mathematics, science, business, government or finance, the default assumption is that the data presented are reasonably reliable to the last digit presented. Thus, if a light bulb is listed as using 3.14 watts, then its actual usage is presumably between 3.13 and 3.15 watts, and certainly
Continue reading Dubious digits: Is this data really that accurate?
One central difficulty of investing, both in the U.S. and internationally, is that most individual investors are not sufficiently well-informed on financial matters (or else are not sufficiently disciplined in their approach), and thus often make less-than-optimal choices in managing their long-term savings. The 2014 DALBAR report, for instance, concluded that over the past 20
Continue reading Index investing: “Confidence in the mathematics”
Challenging times for hedge funds
Recently attention has been drawn to the fact that the advantage enjoyed by hedge funds over more conventional investment vehicles has been eroding. For example, the annualized “excess return” of the HFRI equity hedge fund index (adjusted for certain factors, 60 month rolling average) has declined from approximately 15% in
Continue reading Is “cherry picking” a factor in hedge fund performance?
We are pleased to announce the availability of a new online tool to demonstrate and analyze the phenomenon of backtest overfitting. It is available HERE. It was developed by researchers at the Scientific Data Management Group at Lawrence Berkeley National Laboratory, with contributions and suggestions from several other persons. A complete list of contributors
Continue reading New online tool to demonstrate backtest overfitting
A June 2014 study released by the Employee Benefit Research Institute concluded that many U.S. Baby Boomer and Gen Xer households are expected to run short of money in retirement (assuming 35 years in retirement): 83% of those in the lowest income quartile, 47% in the second quartile, 28% in the third, and 13%
Continue reading How financially literate are individual investors?
On 12 July 2014, David H. Bailey and Jonathan M. Borwein (two of the bloggers on this site) presented the talk Scientific Integrity in Mathematical Finance at the Workshop on Optimization, Nonlinear Analysis, Randomness and Risk, held at the Centre for Computer-Assisted Research Mathematics and its Applications (CARMA), University of Newcastle, Australia. The viewgraphs for
Continue reading Bailey and Borwein give talks on integrity and reproducibility in mathematical finance
On 7 July 2014, the New York Times ran a feature story on James H. Simons, the well-known geometer, hedge fund founder, billionaire and philanthropist. Here are some of the fascinating facts uncovered in the Times story and elsewhere:
Simons was born in 1938 in Newton, Massachusetts, the son of a shoe factory owner. Simons
Continue reading New York Times features story on James Simons
On June 5, Mary Jo White, Chair of the U.S. Securities and Exchange Commission, sketched some proposed changes to regulate high-frequency trading (HFT). Her full speech is available from the SEC website. Some analysis can be read in the New York Times and Bloomberg News.
Synopsis of White’s comments
White surprised many observers by stating
Continue reading SEC to propose new rules for high-frequency trading
As we emphasized in a December 2013 Mathematical Investor blog, individual investors are not very well equipped, and certainly not very effective, in managing their own investment portfolios.
This is unfortunate, because fewer workers than in the past, particularly in the U.S., are covered by a “defined-benefit” retirement system, namely a pension that guarantees a
Continue reading Latest DALBAR report underscores poor long-term performance of individual investors