Monthly Archives: October 2011

Luck versus Skill in the Cross Section of Mutual Fund Returns

Posted by Serhat Yucel, FRM on October 30, 2011 1 comment

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

 



Magic Numbers in the Dow

Posted by Serhat Yucel, FRM on October 25, 2011 No comments

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.

paper_1



CRR Option Pricing

Posted by Özgür Ünal Onbirler on October 8, 2011 No comments

It might seem as just arithmetics,yet use of Cox-Ross-Rubinstein option pricing has been a fundamental step in option pricing.

Attached is an excel for option pricing with CRR model.

crr



Can Financial Engineering Cure Cancer, Solve the Energy Crisis, and Stop Global Warming?

Posted by Serhat Yucel, FRM on October 7, 2011 No comments

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.



Stochastic Portfolio Theory

Posted by Emre Ozcan on October 1, 2011 No comments

This paper is a nice introduction to stochastic portfolio theory .

 

Stochastic portfolio theory