3 ms·
I can't recall the statistical test being done in those papers that conclude how the funds don't do better than random chance right now, but I don't think rando
by NhanH 12y ago
I can't recall the statistical test being done in those papers that conclude how the funds don't do better than random chance right now, but I don't think random chance imply 50% chance to beat the market each year - so your maths following that won't hold. Why? I don't know the reason, but have a note: one year is a completely artificial cut off range. There is no reason to naively assume that it would be 50% chance of beating the market every year rather than 50% chance every 10 years, or 50% every other full moon. I think the maths will have to be done on something else and not a range period.
- DavidSJ 12y agoYou're right that it's an arbitrary interval, but the math is still valid if you assume (as I cautioned against) that each investment is a coin flip relative to the market. In that case, over any time period your relative performance is the sum of a series of coin flips, i.e. a binomial distribution with mean 0. This has a 50% chance of outperformance regardless of the interval -- what changes as a function of interval is the total variance, not the median result. One consequence of this is that the probability of outperforming each day over 40 days is the same as outperforming each year over 40 years. The latter sounds more impressive, but it actually isn't. The former would be impressive too if the null hypothesis really is a series of coin flips (but again, it's not).