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I think the most interesting question is how you can tell if someone is actually good vs fluctuations due to luck. I'd think it takes a long time to get statist
by bo1024 5y ago
I think the most interesting question is how you can tell if someone is actually good vs fluctuations due to luck. I'd think it takes a long time to get statistical significance. Or, during a bull run the optimistic traders all look great for a while, but this later proves illusory.
- Galanwe 5y agoYou just summarized the main problem of quantitative finance: you need points to assert statistical significance. And thus why data providers with long history are paid so much.
- duedillyio 5y agoTruly. There's some standard approaches like beta-adjusting that can be done to put things on equal footing in different market regimes but it's only one part of what determines a stock's performance. Testing for the significance of someone's average returns for example often can be rules of thumb. For example, given a return stream of a trading strategy, the Sharpe ratio (mean return/vol) is directly related to the t-stat of the mean return being different than 0 (mean ret / (vol/sqrt(n)). Several simplifying assumptions must be made about the distributions of returns that don't line up with reality to do the above but it's mostly a heuristic that will let you say "ah, the Sharpe is X over the last 5 years? That's significantly different enough than 0 for it to be tradeable."