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
Posted in Trading Strategies
Tagged coin toss, curve-fitting, data-mining bias, fooled by randomness, multipel comparisons
Comments Off on Fooled by Multiple Comparisons When Developing Systems For Single Securities or Portfolios
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
Posted in Technical Analysis
Tagged correlation, forecasting, VIX
Comments Off on Further Analytical Evidence that VIX Just Tracks the Inverse of Price
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
Posted in Economic Analysis, Risk Management
Tagged market risk, paradigm
Comments Off on A New Paradigm for Equity Investment Risk
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
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
Posted in Technical Analysis
Tagged maxim, S&P 500, Sell in May and go away
Comments Off on Markets Reward Risk Takers