Monthly Archives: August 2012

Fooled by Multiple Comparisons When Developing Systems For Single Securities or Portfolios

The idea that systems developed on historical data of a portfolio of securities have better chance of being non-random as compared to systems that are developed for a single security is based on the assumption that the size of the rule set used in the data-mining … Continue reading

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Further Analytical Evidence that VIX Just Tracks the Inverse of Price

In two separate posts this week I argued that VIX has no predictive capacity and that it simply tracks the inverse of price. I also asserted that a new paradigm has emerged in the markets according to which equity investment risk … Continue reading

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A New Paradigm for Equity Investment Risk

Equity investment risk is proportional to the inverse of price. This is the new paradigm for risk in the equity markets. As prices increase, risk decreases. As prices fall, risk increases. This is happening mainly because of momentum trading and … Continue reading

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On the Zero Predictive Capacity of VIX

VIX is a derivative of price and no derivative of price can predict price. VIX is a non-linear function of the inverse of the price of a security. When prices rise, VIX falls and when prices fall, VIX rises, basically this … Continue reading

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Markets Reward Risk Takers

The recent price action in S&P 500 index is another proof that markets reward risk taking and punish risk aversion. We all know this principle but few are able to actually use it to profit. Those who did not enter the market in early … Continue reading

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Portfolio Backtest and Cross-validation of Machine Designed Trading Strategies

It is easy for trading system developers to be fooled by randomness especially when the underline process that is used for discovering the trading systems is in itself inherently random. Out-of-sample testing is not enough to guarantee statistical significance of any results obtained because … Continue reading

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