Cross-posting from my personal blog, but written primarily for Less Wrong after recent discussion here. There are whispers that the Efficient-Market Hypothesis is dead. Eliezer's faith has been shaken. Scott says EMH may have been the real victim of the coronavirus. The EMH states that “asset prices reflect all available...
tl;dr: summarising some handy concepts from Algorithms to Live By, as they relate to optionality and tinkering. Babies love putting things in their mouths: dirt, insects, bits of grass, their own poo. They have no sense of fear or self-preservation, and come up with endlessly creative ways to place themselves...
Cross-posted and lightly-edited from The Deep Dish. Epistemic status: describing a general phenomenon; may not be correct on every specific point. may have used scientific terms in an annoying metaphorical fashion. elements of pointing out the bleeding obvious, hopefully framed in a novel way. tl;dr: positive feedback loops are a...
Thanks for sharing your experience—the third section in particular is really interesting. Relative to the central discussion: how much time and effort did you have to put in to find those edges, and do you think it was worth it? Would you encourage others to try and do something similar? Or is it more like a hobby?
Your formulation is nifty, and intuitively makes sense to me. I am feeling too wiped right now to think about it carefully, but my off-the-cuff response is that it has something to do with the fact that 'informational edge' is a much broader category than information about the actual underlying assets.
For example, a complicated day-trading algorithm is on some level a reflection of the fact that the market is missing some information. But that information looks more like 'there is a complex relationship between assets under XYZ specific conditions' than 'the EBTDA figure in Walmart's quarterly report'. I guess this is what most anomalies represent: they are more like meta-information than information.
In which case, if you had a superintelligence with near-infinite compute, I think your intuition that it could indeed beat the market is right. I don't know much about quants, but I imagine this is pretty much what they are trying to do, with the difference being that they have bounded resources.
Whoops, thanks, will fix that now.
Hi Scott,
If we take the 6th of March—the last trading day before the March 9 fall—then the market is down 12.2%, which is already in 'correction' territory, and an extremely rapid descent by historical standards.
If we take the 16th of March—the closest trading day we have to 'mid-March'—the market is already down 29.5% per cent, which is not too far off the bottom, and well and truly into 'bear' territory.
To be clear, I think time has proven you correct about the EMH (and this is easy for you to say, now that the market has stabilized).
I thought the talk about EMH being dead was weird at the time, and left a comment... (read more)
Huh, I got that from a recent Bloomberg article which says 15:1...not sure who's right or why the numbers are so different.
Active management in the equity market, both in the U.S. and abroad, is dominant. And not by a little: Active management in the U.S. trounces passive by a ratio of 8-to-1 in dollar investments. Expand that to include the entire world, and the ratio is closer to 15-to-1. If we include fixed income in our calculations, the ratio balloons to 60-to-1.
Second, and it relates to the first, one of the other things (different time) that was pointed out was "market" is a problematic terms. Each asset that is traded has a market and that is not the same as "the market". I think this tends to be something of a problem area for people when the issue of EMH is in question.
Yes! This is another really great point. I think Noah Smith described it by saying something like, 'there is no EMH—there are an infinite number of EMHs all happening at the same time'. Which is another reason the theory is vague and unfalsifiable.
I find it helpful to think about each market... (read more)
Thanks, nice post. I like 'anti-inductive markets', not least because it doesn't come with all the confusing connotations of 'efficient'.
Sure—I was testing a dual momentum strategy over the market as a whole, with a 12-month lookback period. The 'dual' refers to both absolute momentum, and relative momentum between asset classes (bonds, US stocks, non-US stocks).
I haven't evaluated it properly yet, but the signals it generated told me to stay in stocks until the end of March, at which point I ought move into bonds, just in time to miss the recovery. Over the period I've tested it so far (16 months) it has returned -4%, while my benchmark is at +18%. I am still mildly interested to see how it pans out, but I ignored the signals and am now only tracking it on paper.
Yeah, active investors are providing a valuable service to everyone else, both by exploiting genuine asymmetries, and by collectively generating a signal in the Uncle George sense. People sometimes worry about the passive revolution for this reason, but the vast majority of funds under management are still active, and human nature being what it is, there will presumably always be plenty of people willing to have a crack.
Cross-posting from my personal blog, but written primarily for Less Wrong after recent discussion here.
There are whispers that the Efficient-Market Hypothesis is dead. Eliezer's faith has been shaken. Scott says EMH may have been the real victim of the coronavirus.
The EMH states that “asset prices reflect all available information”. The direct implication is that if you don’t have any non-available information, you shouldn’t expect to be able to beat the market, except by chance.
But some people were able to preempt the corona crash, without any special knowledge! Jacob mentioned selling some of his stocks before the market reacted. Wei Dai bought out-of-the-money 'put' options, and took a very handsome profit. Others shorted the market.
These people were... (read 5406 more words →)
tl;dr: summarising some handy concepts from Algorithms to Live By, as they relate to optionality and tinkering.
Babies love putting things in their mouths: dirt, insects, bits of grass, their own poo. They have no sense of fear or self-preservation, and come up with endlessly creative ways to place themselves in mortal peril. Once they learn to talk, their constant experimentation with the world transcends the physical to the philosophical. They want to know everything. They are bottomless pits of curiosity, with very little in the way of attention span or self-discipline. Your typical two-year-old can only concentrate on a task for six minutes at a time. Young children are not self-aware enough... (read 1857 more words →)
Cross-posted and lightly-edited from The Deep Dish.
Epistemic status: describing a general phenomenon; may not be correct on every specific point. may have used scientific terms in an annoying metaphorical fashion. elements of pointing out the bleeding obvious, hopefully framed in a novel way.
tl;dr: positive feedback loops are a thing, thinking in systems/exponentially is hard, intersectionality is underrated.
“For to everyone who has, more will be given, and he will have an abundance. But from the one who has not, even what he has will be taken away.”
—MATTHEW 25:29
In 2013, unknown author Robert Galbraith published his debut novel… to crickets.
The first print run of The Cuckoo’s Calling was 1500 copies. It’s not clear how... (read 2738 more words →)
Plus one! I tried several free tools of this nature, but managed to find loopholes and self-sabotage every single time. Shelled out 20 bucks or something for freedom, and solved the problem instantly.