tag:blogger.com,1999:blog-17232051.post6500333970287975043..comments2024-03-28T03:16:14.104-04:00Comments on Noahpinion: Is the EMH research project dead?Noah Smithhttp://www.blogger.com/profile/09093917601641588575noreply@blogger.comBlogger31125tag:blogger.com,1999:blog-17232051.post-32296693564726358042015-09-26T14:38:34.130-04:002015-09-26T14:38:34.130-04:00I don't understand vey much about your interes...I don't understand vey much about your interesting argument, but EMH has been refuted by the financial facts between 2000 (bubble) 2008 (burst) and the following up. It is ridiculous the pretence of these guys of not to recognize their troubles. EMH doesn't work, because is impossible. It doesn't fit the facts and never will fit them. www.MiguelNavascues.comhttps://www.blogger.com/profile/00880006105532291958noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-31278320217582703962015-09-25T10:53:42.715-04:002015-09-25T10:53:42.715-04:00Noah, in your last bloomberg view article you affi...Noah, in your last bloomberg view article you affirm that capital taxes are the most distortionary ones. Of course, I do not want to question that they are, but you should read this paper http://www.nber.org/papers/w20441, which shows that the famous Chamley-Judd result simply comes out of a mathematical error.LMhttps://www.blogger.com/profile/04209992315578358377noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-12111466167694045962015-09-24T17:27:35.560-04:002015-09-24T17:27:35.560-04:00Rentech's workhorse is the Millenium fund, whi...Rentech's workhorse is the Millenium fund, which is very short term, essentially HFT. That's a mircostructure play. Lot's of data, relative stable behavior, processing power counts for a lot. That's not the case, the moment you start going on longer time scales. Rentech found that out, when they did try to go a bit longer.<br /><br />I am not saying there are no patterns to be exploited, but they are not easy to find. That actually has little to do with competition or even its generalization: EHM. Noise rules in small samples.Krzyshttps://www.blogger.com/profile/15794655390770135247noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-8447813785691460772015-09-24T05:00:27.335-04:002015-09-24T05:00:27.335-04:00Tom: That's exactly what I'm saying. Some ...Tom: That's exactly what I'm saying. Some mispricings exist and continue to withstand the test of time because they're not widely ( or atleast not widely enough ) known. <br /><br />The reason this all got brought up was because Noah made it sound though like these things "pop up all the time" and are well known which I don't agree with. <br /><br />To me, the term "mispricing" and "pattern" are sort of synonymous in this context.<br />Although I think it's more clear if EMH said that that patterns can exist only when they are not widely known. <br /><br /><br />The term "mispricing", to me, implies that it's going to correct at some future point and, in some cases, it clearly doesn't ( atleast in the offices of Millenium, Rentech etc ). But I agree with you that the term "mispricing" is used in the literature rather than the term "pattern".<br /><br />Actually, now that I read your response again: I think Grey's EMH Lemma says<br />it best: Any "economic law" or "insight" which are both very similar to "pattern". Thanks.<br /><br /><br /><br /><br /><br /> <br />mark leedshttps://www.blogger.com/profile/13213841692738932471noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-42174635536712798702015-09-24T04:27:40.261-04:002015-09-24T04:27:40.261-04:00>> It doesn't say that no systematic mi...>> It doesn't say that no systematic mispricing can exist;it says that none can exist and be generally known. As such it's logically impossible for a discovery of a previously not generally known systematic mispricing to disprove EMH. <<<br /><br />"mispricing" means, in practice, that there will be a correction. Corrections today mean there was mispricing in the recent past.<br />EMH says there is no generally known way to see mispricing today, before the correction in the near future.<br />If there was a way, investors would anticipate the future correction and buy/sell now -- which would eliminate the mispricing and cause a smaller correction sooner.<br /><br />Grey's EMH Lemma - any "economic law" or insight that allows investors to consistently make more money than a random walk will lead investors to change their investment behavior in such a way as to invalidate that previously valid insight.<br /><br />"US House prices always go up" (pretty good from 1982-2006, but then!) is just one example of such a policy.Tom Greyhttps://www.blogger.com/profile/15046612425809449502noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-33953742857815837772015-09-23T16:23:40.726-04:002015-09-23T16:23:40.726-04:00Hi Kryz: I don't know. All I know is that Rent...Hi Kryz: I don't know. All I know is that Rentech and Millenium do well enough to<br />imply that there are strategies out there that withstand the test of time and don't go<br />away because too many people know about them. <br /><br />As we all know, the devil is in the details. For example, everyone knows that specific stock behavior occurs during the day ( atleast usually ). But how does one exploit that ? That's what matters. Probably similar concepts for other strategies. mark leedshttps://www.blogger.com/profile/13213841692738932471noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-55077741344391357462015-09-22T01:34:33.980-04:002015-09-22T01:34:33.980-04:00Yes, Renntech did great in their main fund: the ve...Yes, Renntech did great in their main fund: the very short term one, but then Simmons decided to do something on a bit longer time scale. How well did that go?Krzyshttps://www.blogger.com/profile/15794655390770135247noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-67472846618296078542015-09-21T21:47:24.889-04:002015-09-21T21:47:24.889-04:00I've worked in prop and hedge funds and I disa...I've worked in prop and hedge funds and I disagree with the idea the short term strategies ( non HFT but short term ) go away quickly. I know that some short term strategies can withstand the test of time if the knowledge of them is not easily obtained. <br /><br />Millenium and Rentech's returns are real and the people that run them often do run them alone. Or, if they have developers in the group, the developers are not necessarily given access to the strategies. The quant strategies at these places work and are kept SECRET as much as it is possible to keep them SECRET.<br /> <br />I'm referring to strategies that intuitively would go away by too many people knowing ( Maybe there are some that thrive on a lot of public knowledge but I don't know of them ) which is why they are kept so secret. But my point was that Noah made it sound like these pop up in the public all the time. I don't think they do. It's an incredibly competitive, dog eat dog and secretive business. <br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br /><br />mark leedshttps://www.blogger.com/profile/13213841692738932471noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-54713787281443920042015-09-21T13:17:42.163-04:002015-09-21T13:17:42.163-04:00Brad's thinking on this is simply soft, and a...Brad's thinking on this is simply soft, and an example of why I don't read him. He dislikes EMH because some people interpret it politically conservatively, but fails to grasp what it really means. It doesn't say that no systematic mispricing can exist;it says that none can exist and be generally known. As such it's logically impossible for a discovery of a previously not generally known systematic mispricing to disprove EMH.Tom Warnerhttps://www.blogger.com/profile/11247836188106712069noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-27705069120130027732015-09-20T15:29:49.166-04:002015-09-20T15:29:49.166-04:00If anything, I think the markets have gotten more ...If anything, I think the markets have gotten more efficient as evidence by the post-2008 poor performance of active management. Funds are finding it increasing difficult to beat the S&P 500 benchmark.grey enlightenmenthttp://greyenlightenment.comnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-82008002038808903842015-09-20T12:57:56.085-04:002015-09-20T12:57:56.085-04:00And yes, the notion that there's a deep fundam...And yes, the notion that there's a deep fundamental difference between "behavioral" and "rational" behavior rules is more than a bit silly. Not just for the reasons Roger says, but also regarding the "faulty information processing" wing of behaviorism. What looks faulty to us is probably optimal under some set of constraints - see Gabaix's work on sparse information processing, etc.Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-59787456308622004822015-09-20T12:39:16.856-04:002015-09-20T12:39:16.856-04:00Roger spells "behavioral" like a Brit! S...Roger spells "behavioral" like a Brit! Speak Amurican, Roger, none o' this "English" stuff!!Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-65941615441284601912015-09-20T11:46:14.180-04:002015-09-20T11:46:14.180-04:00You brag once it goes away. In truth, if it's...You brag once it goes away. In truth, if it's something systematic and large, things slowly leak out and become common knowledge in the industry. You can't work alone. Krzyshttps://www.blogger.com/profile/15794655390770135247noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-27087050095234295612015-09-20T11:45:06.177-04:002015-09-20T11:45:06.177-04:00Roger has a nice post on the subject: http://roger...Roger has a nice post on the subject: http://rogerfarmerblog.blogspot.com/2015/07/behavioural-economics-and-exotic.htmlDavid Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-31347820205508828292015-09-20T11:40:39.367-04:002015-09-20T11:40:39.367-04:00No, actually that's not what happens. Majority...No, actually that's not what happens. Majority of so called anomalies (or inefficiencies), no matter how thoroughly back tested, just fall apart very quickly the moment you start trading them. It has little to do with others catching on. It turns out majority of stuff is noise. Information is hard to get. <br /><br />It's a bit different for high frequency microstructure plays. There, things are not as ugly. Just more competitive.Krzyshttps://www.blogger.com/profile/15794655390770135247noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-30758701888183550812015-09-20T04:08:11.451-04:002015-09-20T04:08:11.451-04:00From what I hear the current practitioner (no talk...From what I hear the current practitioner (no talk about it) mode is for the intermediate run to play the anomalies. Find them and put them in with a rapid decline in the trading algorithm ahead of the other traders. Shorter time horizons become econophysics, and the really long run time horizon remains being dead as one randomly walks, however that is done after one pays off the relatives of those dying as one throws those darts without thinking...rosserjb@jmu.eduhttps://www.blogger.com/profile/09300046915843554101noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-81303032594867408822015-09-20T01:09:49.257-04:002015-09-20T01:09:49.257-04:00Hi Noah: I don't know of anyone who finds a tr...Hi Noah: I don't know of anyone who finds a true anomaly and is naive enough to publicize it. I'm a statistician rather than an economist but I do a lot of econometrics that I would never mention the details of. I know of no one who has truly fund a statistical-econometric anomaly that makes consistent profits who would tell others about it ? So, when you say that they're well know and keep "popping up", what are you referring to ? A lot of people would love to know. Thanks.mark leedshttps://www.blogger.com/profile/13213841692738932471noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-22504704286796958062015-09-19T22:18:05.689-04:002015-09-19T22:18:05.689-04:00Haha fair enough. But they find basically the same...Haha fair enough. But they find basically the same stuff in overseas markets too. Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-65085237475470682992015-09-19T21:36:08.321-04:002015-09-19T21:36:08.321-04:00When everyone is looking at the same timeseries, t...When everyone is looking at the same timeseries, the fact that the "same few few anomalies" keep popping up is not quite so impressive. Wake me when you find a secret cache in the CRSP basement with an independent dataset from Bizarro World that displays precisely the same anomalies :-)Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-17232051.post-61087219982278022402015-09-19T21:14:24.046-04:002015-09-19T21:14:24.046-04:00This comment has been removed by the author.Anonymoushttps://www.blogger.com/profile/15996231798769238989noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-256346724449055142015-09-19T21:06:00.736-04:002015-09-19T21:06:00.736-04:00No, beauty contests, even if true, don't refut...No, beauty contests, even if true, don't refute the EMH. And logical arguments <i>can</i> kill hypotheses, but require actual logic.pithomhttps://www.blogger.com/profile/13997094225496018110noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-33418101275385602312015-09-19T21:05:36.311-04:002015-09-19T21:05:36.311-04:00Sure, but the same few anomalies keep popping up e...Sure, but the same few anomalies keep popping up everywhere, and this just puts them in a slightly different form. It's not really a brand new discovery.Noah Smithhttps://www.blogger.com/profile/09093917601641588575noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-6590776844071385982015-09-19T20:21:45.806-04:002015-09-19T20:21:45.806-04:00The new paper is just data mining. Some behaviora...The new paper is just data mining. Some behavioral regularity explains the return pattern? Given how many different behavioral anomalies have been identified, there's no doubt some of them will fit. <br /><br /><br />Unless, the specific anomaly produces robust insights in other situations, it's just garbage. <br /><br />I know you guys get paid to talk, but you should ask yourself the question: if in Psychology, two thirds of studies are noise, what do you think the percentage is in finance? 70%? 80%? 90%?<br /><br />Any stuff you see, you should greet with a question: Why should I think the particular study is NOT noise.Krzyshttps://www.blogger.com/profile/15794655390770135247noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-7407761772939155672015-09-19T19:27:02.750-04:002015-09-19T19:27:02.750-04:00The great tragedy of science - the slaying of a be...<i>The great tragedy of science - the slaying of a beautiful hypothesis by an ugly fact.</i><br /><br />Thomas Huxley<br />Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.comtag:blogger.com,1999:blog-17232051.post-860161622934005102015-09-19T19:25:44.432-04:002015-09-19T19:25:44.432-04:00If I assume that the investors around me are irrat...If I assume that the investors around me are irrational and that government and its agencies are incompetent, malevolent or both what am I as a poor little investor to do?Absalonhttps://www.blogger.com/profile/09131268683451462949noreply@blogger.com