Posted by Serhat Yucel, FRM on October 30, 2011
Luck versus Skill in the Cross Section of Mutual Fund Returns by Eugene F. Fama and Kenneth R.French
Abstract: The aggregate portfolio of actively managed U.S. equity mutual funds is close to the market portfolio, but the high costs of active management show up intact as lower returns to investors. Bootstrap simulations suggest that few funds produce benchmark adjusted expected returns sufficient to cover their costs. If we add back the costs in fund expense ratios, there is evidence of inferior and superior performance (non-zero true α) in the extreme tails of the cross section of mutual fund α estimates.
luck vs skill
Posted by Serhat Yucel, FRM on October 25, 2011
Magic Numbers in TheDow
by Roy Batchelorand Richard Ramyar
Abstract: There is a widespread belief in financial markets that trends in prices are arrested at support and resistance levels that are to some degree predictable from the past behaviour of the price series. Here we examine whether ratios of the length and duration of successive price trends in the Dow Jones Industrial Average cluster around round fractions or Fibonacci ratios. We identify turning points by heuristics similar to those used in business cycle analysis, and test for clustering using a block bootstrap procedure. A few significant ratios appear, but no more than would be expected by chance given the large number of tests we conduct.
Posted by Serhat Yucel, FRM on October 7, 2011
Lessons from the financial crisis could lead to solutions far afield of financial markets. Andrew Lo will provide an overview of the crisis, describe the role mathematics played, and suggest how a deeper understanding of human nature may allow us to focus the power of global financial markets on key societal challenges.
Posted by Emre Ozcan on October 1, 2011
This paper is a nice introduction to stochastic portfolio theory .
Stochastic portfolio theory