5 ms·

The book “A random walk down Wall Street” concluded “NO”

by kuhhk 8y ago

mruts 8y ago
I mean, that book was looking at technical analysis and charting. Also, he was just looking at mutual funds (which can only go long and suffer from a host of other problems). Hedge funds weren't really invented/popular back then and quant investing was practically non-existent. Economists love to talk about EMH, and there's a great joke that illustrates the difference between economists and traders: The economist is asked what he would do if he saw a $20 dollar on the street. He replies "well it wouldn't ever happen, because someone would have already picked it up!" The trader is the one picking up the $20, and the economist is the one who never believes it can exist. Back to the point, it seems clear to me that there are few quant hedge funds that can have consistently outperformed the market that disproves the null hypothesis (no out performance) with a P < 0.05. Names like RenTech, Bridgewater, AQR, 2 Sigma.
- ramblerman 8y ago
  > I mean, that book was looking at technical analysis and charting Trying to predict the future by looking at candlesticks is pretty much the definition of charting.
  - mruts 8y ago
    Yeah that’s a good point. But I think the author of a random walk on Wall St was trying to make a stronger point: that all out performance on Wall St is just a random walk.
- astazangasta 8y ago
  >it seems clear to me that there are few quant hedge funds that can have consistently outperformed the market that disproves the null hypothesis (no out performance) with a P < 0.05 The meaning p < 0.05 is that by random chance you expect to find 5% of companies doing this well relative to the rest with no actual underlying cause. The existence of a few companies that manage this is proof of exactly nothing about those companies.
  - mikeyouse 8y ago
    There's also a strong hint that the most prominent and successful Funds with long records of market over-performance were actually just insider trading all along and their continued success is an indictment of our ability to effectively police white collar criminals: https://www.newyorker.com/magazine/2017/01/16/when-the-feds-went-after-the-hedge-fund-legend-steven-a-cohen https://www.newyorker.com/magazine/2017/01/16/when-the-feds-...
    - mruts 8y ago
      Comparing SAC/Point 72 with RenTech or Bridgewater is a joke. SAC is/was run by stupid goons (I know a couple of them, they’re dumb). Bridgewater and RenTech employ top down systematic quantitative strategies (I also know a couple of them, they’re quite smart) that consistently generate alpha. It’s easy to discredit people/industries that you are not familiar with. But I work in it, and awhile a lot of hedge funds are full of shit, there are a few that are the real deal. You can systematically outperform the market year over year, and just because you might be more familiar with SV than Wall St doesn’t mean we are a bunch of crooks. I work day in, day out, trying to make money for our funds investors. And honestly, I find it extremely insulting that you are calling all of us a bunch of criminals. Edit: I’m sorry I sounded s little hostile, but I take pride in my work and believe I am helping the world. I think a lot of HNers are unfamiliar with the tech people on Wall St. And that’s okay, but we are just like you: trying to make money for the firm using technology and quantitative reasoning. The same kind of work you might do at FAANG, we do on Wall St.
  - TuringNYC 8y ago
    Notice how many stock-picking darlings suddenly started losing money once regulators started finally enforcing insider trading rules. The likelihood is that crazy stock picking performance pre-2008 was mostly on insider knowledge, not on charting prowess.
  - mruts 8y ago
    The thing is, there are large extinction events with hedge funds. The chance that RenTech (run by Jim Simons, former NSA cryptologist), beats all competitors, year over year, for over 35 years against a different set of hedge funds each year is much less than 5%. Also, to think that RenTech is insider trading is borderline ludicrous. They don’t even hire finance people. Most of their original employees come from the IBM linguistics lab. I work in the industry, and to be honest, many/most hedge funds are full of shit. They have high fees and enrich themselves at the expense of their clients. But let me tell you, RenTech is the real fucking deal. No one can match their returns. In fact, they make so much money that their main money maker (the Medallion Fund), isn’t even open to outside investors (only employees get to contribute). Look at their historical return stream, it’s ridiculous. According to Wikipedia, from 1994 to 2014 it averaged an annual return of over 70%. I don’t know what the P value is of that off the top of my head but it must be under .00005. https://en.m.wikipedia.org/wiki/Renaissance_Technologies https://en.m.wikipedia.org/wiki/Renaissance_Technologies
dallashoxton 8y ago
"A random walk down Wall Street" is quite the contradiction of a book, though. It simultaneously claims that markets are so efficient that a lay-person cannot profit from them while acknowledging the existence of asset bubbles. The whole "efficient market hypothesis" to me seems much more like a religious belief among neoclassical finance types than anything actually scientific. Furthermore, there's a fair amount of research that suggests that Brownian motion/random walk does not at all explain the movements of a stock's price [1][2][3] [1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=346975 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=346975 [2] http://assets.press.princeton.edu/chapters/s6558.pdf http://assets.press.princeton.edu/chapters/s6558.pdf [3] https://www.jstor.org/stable/4538722?seq=1#page_scan_tab_contents https://www.jstor.org/stable/4538722?seq=1#page_scan_tab_con...
- OldHand2018 8y ago
  > The whole "efficient market hypothesis" to me seems much more like a religious belief among neoclassical finance types than anything actually scientific. Let's ask the creator of the efficient market hypothesis [1]: What is the efficient-markets hypothesis and how good a working model is it? Gene Fama: It’s a very simple statement: prices reflect all available information. Testing that turns out to be more difficult, but it’s a simple hypothesis. Richard Thaler: I like to distinguish two aspects of it. One is whether you can beat the market. The other is whether prices are correct. Gene Fama: It’s a model, so it’s not completely true. No models are completely true. They are approximations to the world. The question is: “For what purposes are they good approximations?” As far as I’m concerned, they’re good approximations for almost every purpose. I don’t know any investors who shouldn’t act as if markets are efficient. There are all kinds of tests, with respect to the response of prices to specific kinds of information, in which the hypothesis that prices adjust quickly to information looks very good. It’s a model—it’s not entirely always true, but it’s a good working model for most practical uses. [blah blah blah] The point is not that markets are efficient. They’re not. It’s just a model. The question is, “How inefficient are they?” I tend to give more weight to systematic things like failure to adjust completely to earnings announcements, or momentum, than to anecdotes, which are curiosity items rather than evidence. ------ This does not sound like "religious belief" to me. [1] http://review.chicagobooth.edu/economics/2016/video/are-markets-efficient http://review.chicagobooth.edu/economics/2016/video/are-mark...

The book “A random walk down Wall Street” concluded “NO”

by kuhhk 8y ago

The book “A random walk down Wall Street” concluded “NO”

I mean, that book was looking at technical analysis and charting. Also, he was just looking at mutual funds (which can only go long and suffer from a host of other problems). Hedge funds weren't really invented/popular back then and quant investing was practically non-existent. Economists love to talk about EMH, and there's a great joke that illustrates the difference between economists and traders: The economist is asked what he would do if he saw a $20 dollar on the street. He replies "well it wouldn't ever happen, because someone would have already picked it up!" The trader is the one picking up the $20, and the economist is the one who never believes it can exist. Back to the point, it seems clear to me that there are few quant hedge funds that can have consistently outperformed the market that disproves the null hypothesis (no out performance) with a P < 0.05. Names like RenTech, Bridgewater, AQR, 2 Sigma.

ramblerman 8y ago
> I mean, that book was looking at technical analysis and charting Trying to predict the future by looking at candlesticks is pretty much the definition of charting.
- mruts 8y ago
  Yeah that’s a good point. But I think the author of a random walk on Wall St was trying to make a stronger point: that all out performance on Wall St is just a random walk.
astazangasta 8y ago
>it seems clear to me that there are few quant hedge funds that can have consistently outperformed the market that disproves the null hypothesis (no out performance) with a P < 0.05 The meaning p < 0.05 is that by random chance you expect to find 5% of companies doing this well relative to the rest with no actual underlying cause. The existence of a few companies that manage this is proof of exactly nothing about those companies.
- mikeyouse 8y ago
  There's also a strong hint that the most prominent and successful Funds with long records of market over-performance were actually just insider trading all along and their continued success is an indictment of our ability to effectively police white collar criminals: https://www.newyorker.com/magazine/2017/01/16/when-the-feds-went-after-the-hedge-fund-legend-steven-a-cohen https://www.newyorker.com/magazine/2017/01/16/when-the-feds-...
  - mruts 8y ago
    Comparing SAC/Point 72 with RenTech or Bridgewater is a joke. SAC is/was run by stupid goons (I know a couple of them, they’re dumb). Bridgewater and RenTech employ top down systematic quantitative strategies (I also know a couple of them, they’re quite smart) that consistently generate alpha. It’s easy to discredit people/industries that you are not familiar with. But I work in it, and awhile a lot of hedge funds are full of shit, there are a few that are the real deal. You can systematically outperform the market year over year, and just because you might be more familiar with SV than Wall St doesn’t mean we are a bunch of crooks. I work day in, day out, trying to make money for our funds investors. And honestly, I find it extremely insulting that you are calling all of us a bunch of criminals. Edit: I’m sorry I sounded s little hostile, but I take pride in my work and believe I am helping the world. I think a lot of HNers are unfamiliar with the tech people on Wall St. And that’s okay, but we are just like you: trying to make money for the firm using technology and quantitative reasoning. The same kind of work you might do at FAANG, we do on Wall St.
- TuringNYC 8y ago
  Notice how many stock-picking darlings suddenly started losing money once regulators started finally enforcing insider trading rules. The likelihood is that crazy stock picking performance pre-2008 was mostly on insider knowledge, not on charting prowess.
- mruts 8y ago
  The thing is, there are large extinction events with hedge funds. The chance that RenTech (run by Jim Simons, former NSA cryptologist), beats all competitors, year over year, for over 35 years against a different set of hedge funds each year is much less than 5%. Also, to think that RenTech is insider trading is borderline ludicrous. They don’t even hire finance people. Most of their original employees come from the IBM linguistics lab. I work in the industry, and to be honest, many/most hedge funds are full of shit. They have high fees and enrich themselves at the expense of their clients. But let me tell you, RenTech is the real fucking deal. No one can match their returns. In fact, they make so much money that their main money maker (the Medallion Fund), isn’t even open to outside investors (only employees get to contribute). Look at their historical return stream, it’s ridiculous. According to Wikipedia, from 1994 to 2014 it averaged an annual return of over 70%. I don’t know what the P value is of that off the top of my head but it must be under .00005. https://en.m.wikipedia.org/wiki/Renaissance_Technologies https://en.m.wikipedia.org/wiki/Renaissance_Technologies

dallashoxton 8y ago

"A random walk down Wall Street" is quite the contradiction of a book, though. It simultaneously claims that markets are so efficient that a lay-person cannot profit from them while acknowledging the existence of asset bubbles. The whole "efficient market hypothesis" to me seems much more like a religious belief among neoclassical finance types than anything actually scientific. Furthermore, there's a fair amount of research that suggests that Brownian motion/random walk does not at all explain the movements of a stock's price [1][2][3] [1] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=346975 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=346975 [2] http://assets.press.princeton.edu/chapters/s6558.pdf http://assets.press.princeton.edu/chapters/s6558.pdf [3] https://www.jstor.org/stable/4538722?seq=1#page_scan_tab_contents https://www.jstor.org/stable/4538722?seq=1#page_scan_tab_con...

OldHand2018 8y ago
> The whole "efficient market hypothesis" to me seems much more like a religious belief among neoclassical finance types than anything actually scientific. Let's ask the creator of the efficient market hypothesis [1]: What is the efficient-markets hypothesis and how good a working model is it? Gene Fama: It’s a very simple statement: prices reflect all available information. Testing that turns out to be more difficult, but it’s a simple hypothesis. Richard Thaler: I like to distinguish two aspects of it. One is whether you can beat the market. The other is whether prices are correct. Gene Fama: It’s a model, so it’s not completely true. No models are completely true. They are approximations to the world. The question is: “For what purposes are they good approximations?” As far as I’m concerned, they’re good approximations for almost every purpose. I don’t know any investors who shouldn’t act as if markets are efficient. There are all kinds of tests, with respect to the response of prices to specific kinds of information, in which the hypothesis that prices adjust quickly to information looks very good. It’s a model—it’s not entirely always true, but it’s a good working model for most practical uses. [blah blah blah] The point is not that markets are efficient. They’re not. It’s just a model. The question is, “How inefficient are they?” I tend to give more weight to systematic things like failure to adjust completely to earnings announcements, or momentum, than to anecdotes, which are curiosity items rather than evidence. ------ This does not sound like "religious belief" to me. [1] http://review.chicagobooth.edu/economics/2016/video/are-markets-efficient http://review.chicagobooth.edu/economics/2016/video/are-mark...