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High noon for 2015 market prophets

When a prophet speaketh, … if the thing follow not, nor come to pass, … the prophet hath spoken it presumptuously: thou shalt not be afraid of him.” [Deuteronomy 18:22].

In a December 2014 Math Investor blog, we assessed how 2014 market prophets had fared (answer: not very well). Thus with the holiday season once again upon us, it is time to check scores. So how have 2015 prophets performed? Can prophets make profits?

Stock pickers lose

2015 was not a good year for stock pickers. According to Thomson Reuters and FacSet, the ten U.S. stocks that leading Wall Street

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Is research in finance and economics reproducible?

Reproducibility in scientific research

In the past year or two, the reproducibility of research results in finance and economics has come under serious question.

If it is any comfort, similar difficulties have emerged in numerous other scientific fields. In 2011, a team of Bayer researchers attempted to reproduce a set of key published pharmaceutical studies. They were only able to validate 11 out of 67 of these studies. Similarly, in 2012, Amgen attempted to reproduce a set of studies in oncology (cancer). They were only able to reproduce 6 out of 53 (11%). A commentary in Nature remarked, “Even knowing

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Are hedge funds losing their edge?

Hedge funds are a boutique segment of the investing world, usually marketed to large institutions and wealthy individuals (not to the general public). As the name implies, many of these funds combine a somewhat more risky overall strategy, operated by highly professional traders, with a relatively safer “hedge.” Together, these two balancing strategies seek overall returns exceeding more conventional investments with less susceptibility to losses during periods of higher volatility. Worldwide, hedge funds manage roughly USD$3.2 trillion in assets.

Hedge funds typically charge a management fee of around 2 percent, and a performance fee (a take on profits) of around

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Do individual investors understand Social Security and its overseas counterparts?

Introduction

As we emphasized in earlier Math Drudge blogs (May 2014 and July 2014), individual investors are not very well equipped, and certainly not very effective, in managing their own investments, or in making other key financial decisions.

U.S. 401(k) accounts, and their equivalents elsewhere, are a particular problem. According to the 2014 DALBAR report, over the past 20 years the average “equity fund” investor achieved an average 5.02% annualized return, which is 4.2% less than the 9.22% than he/she could have achieved by simply investing funds in an S&P500 index-tracking fund. Investors in “fixed income funds” did more poorly

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Three of the all-time top ten SSRN Econometrics:Math papers are from the MAFFIA

The Social Science Research Network’s Econometrics: Mathematical Methods and Programming eJournal distributes working and accepted paper abstracts in the area of mathematical methods applied to econometrics. The journal maintains a list of the All Time Top Ten Papers of the journal, based on total download counts from the journal’s SSRN website from January 2, 1997 through the current date. The current top ten list is shown below, together with download counts as of June 3, 2015. These are selected out of a current total of 4,201 papers.

We note with some measure of satisfaction that three papers from this list,

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Lessons from the “Flash Crash” regulatory fiasco

On April 21, 2015, the U.S. Department of Justice announced that it would press criminal charges against Mr. Navinder Singh Sarao, a 36-year-old small-time British day-trader. He is being blamed for nothing less than causing the “Flash Crash” of May 6, 2010, the second largest point swing (1010.14 points) and the biggest one-day point decline (998.5 points) in the history of the Dow Jones Industrial Average. This shocking revelation is just the most recent turn in a surreal story that exposes the technical inadequacy of present-day market regulatory agencies.

A bit of history

Following that infamous day, observers were

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How much do investors lose from conflicted advice?

Introduction

Investors worldwide turn to financial advisors when making key decisions such as whether or how they should convert an employer-based retirement account (such as a “401(k)” account in the U.S., an “RRSP” in Canada, “Super” in Australia) to an individually-directed retirement account (such as an individual retirement account or “IRA” in the U.S.). However, such financial advisors are typically compensated, directly or indirectly, in the form of fees and/or commissions from funds and other investment products. Not surprisingly, their recommendations are not always in the individual customer’s best interest.

A U.S. government report, released 19 February 2015 by the

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Swiss franc episode exposes risky investments

A Swiss chocolate surprise

The surprise move of the Swiss National Bank on 15 January to abandon its cap on the euro exchange range sent shock waves through global markets and exposed numerous instances of investment funds and trading operations that had made too-risky bets in the currency markets. Among the casualties are the following:

Everest Capital’s Global Fund (the largest fund under Everest management) had to close its doors after losing virtually all of its money (nearly US$830 million). According to a Bloomberg report, the fund had recently bet that the Swiss franc would decline. Alpari, a London-based brokerage

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How have 2014 market prophets fared?

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 of him.” [Deut. 18:22].

Time is running out for 2014 market predictors. So how have they fared? Are prophets good at making profits?

A rough year for hedge funds

At least one sector of the finance world has a disappointing record so far: the hedge

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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 not 2.8 or 4.2 watts. Or if the average interest rate paid on a set of securities is listed as 2.718 percent, then a reasonable reader presumes that the actual figure is between 2.717 and 2.719 percent.

The total number of significant digits can vary

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