Selective Perception

Good out-of-sample results of a unique hypothesis may impress me but not naive statistics that demonstrate selective perception bias. Here is a recent example.

There has been a lot of unnecessary and unjustifiable noise in the financial blogosphere about the fact that the S&P 500 has not have a 1% range for quite some time, currently for 40 days, as shown in the chart below.

So many are impressed by the above fact because they are victims of selective perception. If we consider a daily range of 1.5% instead, this is what happens.

Now there is no new record but 64 days without a 1.5% range with a maximum of 116 days in 1993 and two occurrences of 100 days in 2005 and 2006. Now this (64 days ) is not impressive and this is the reason the 1% range is preferred because it shows a new record reading.

I am not impressed at all by selective perception. If you want to impress me with analysis, show me out-of-sample results of a unique hypothesis or portfolio in case of a data-mined hypothesis. Everything else is boring and a waste of time.

If you have any questions or comments, happy to connect on Twitter: @mikeharrisNY

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