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Dubious digits: Is this data really that accurate?

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

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Index investing: “Confidence in the mathematics”

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

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Is “cherry picking” a factor in hedge fund performance?

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

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New online tool to demonstrate backtest overfitting

Introduction

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

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How financially literate are individual investors?

Introduction

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%

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Bailey and Borwein give talks on integrity and reproducibility in mathematical finance

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

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New York Times features story on James Simons

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

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SEC to propose new rules for high-frequency trading

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

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Latest DALBAR report underscores poor long-term performance of individual investors

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

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Do new backtested index ETFs outperform the market?

Many investors, individual and institutional, have come to the conclusion that index-linked investments are a rational and, in the long term, profitable investment strategy.

It is certainly true that many individual investors could do far worse that merely investing, say, in a S&P500 index fund or exchange-traded fund (ETF). As we described in a previous

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