Comments on: Where the Black Swans Hide

By: Matt Busigin

Matt Busigin — Tue, 14 Apr 2009 09:33:24 +0000

Looking at volatility prior to Securities Act of 1933 is unproductive. The margins allowed then contributed to volatility we likely won't see again, and your points will probably be more strongly stated if you rightly exclude the data.

By: nickgogerty

nickgogerty — Thu, 09 Apr 2009 16:56:35 +0000

Very helpful post. A lot volatility assumptions assume price skew but not a vega skew. The comment on regime shifting is pretty helpful. A lot of “simple” models are helped significantly with a regime shift on top.

That new financial database you are getting should be pretty cool. Looking forward to posts with lots of historical and new asset presentations.

By: WorldBeta

WorldBeta — Mon, 06 Apr 2009 18:27:47 +0000

i have not – links? papers?

By: wkevinw

wkevinw — Mon, 06 Apr 2009 14:58:13 +0000

Outstanding stuff, as usual.

Thank you.

By: Alex

Alex — Mon, 06 Apr 2009 05:10:58 +0000

What your basically describing is regime switching, whereby you are using the 200 day MA as the identifier of the regime. Have you looked into more sophisticated regime switching models such as Hamilton's Markov techniques?

By: John Farrall

John Farrall — Sun, 05 Apr 2009 18:08:26 +0000

Meb,
I agree as well with your outrage… Mindless drivel for buy and “mold” portfolio management. Missing the best days, which typically often follow the worst days, is difficult if not impossible. Then, of course, missing the worst days BEFORE they occur is as impossible. Funny, you mention black swans, since the 3 best or worst days in a trading year are, of course, tails in themselves… As you also suggest, it is the trend of days in the middle of the distribution that matters more… Bear markets have sharp but brief uptrends, bull markets have sharp but brief downtrends. The profit in either is the more common trend and not the countertrends. With the 10 best or worst days impossible to foresee or avoid, depending on your penchant to go long or short.

By: Michael

Michael — Sat, 04 Apr 2009 16:25:39 +0000

Mebane – LOL about the “missing the 10 best days” and all the variants on that theme! I too think it is a rediculous and misleading stat. For a presentation for a fund idea I have, I ran the counter stat. First, I establised the baseline: $100 invested on Jan 1 1950 (incl dividends) would be worth $5,422 at the end of 2008. BUT, as their argument goes, you missed the 3 BEST days each year, you would only have $52.37!! Sounds like proof positive to buy and hold, correct? Well, if you happened to be so prescient and in fact missed the 3 WORST days?? You'd have $671,573. Equally senseless, useless, and (as you say) misleading figures.

By: WorldBeta

WorldBeta — Fri, 03 Apr 2009 21:26:27 +0000

i like the new title better . . .

By: toptick

toptick — Fri, 03 Apr 2009 20:52:10 +0000

The title of the post, “Where the Black Swans Lie”, made me think first: black swans do not lie, they reveal unrecognized truth!