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David Harris's Blog (4)

Tool induced arbitrage opportunities, also, how to cut cakes.

How should an estimator be chosen?  The academic training of economists and finance professionals has traditionally favored the minimum variance unbiased estimator (MVUE).  Sometimes, the maximum likelihood estimator (MLE) is chosen.  From time to time, the method of moments (MOM) or the generalized method of moments (GMM) is used.  Because of its subjective nature, Bayesian methods are rarely used.

 

The problem with this hierarchy is that it is preference-based and ignores…

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Added by David Harris on November 5, 2019 at 8:30pm — No Comments

If not mean-variance finance, then what?

I want to apologize to my small audience for being so long in waiting to post a blog post.  My goal had been one per week, but life intervened in the meantime.  While I have tried to be productive, the blog post fell by the wayside. 

 

I did write a couple of short stories, I must confess.  I wrote How to Engage in Counterespionage Operations Against Ghosts because I grew up watching Sherlock Holmes movies and the Twilight Zone.  I wrote a small set of short stories…

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Added by David Harris on July 16, 2019 at 12:45pm — No Comments

Data Science, Common Stocks and V&V

I thought I would follow on my first blog posting with a follow-up on a claim in the post that going returns followed a truncated Cauchy distribution in three ways.  The first way was to describe a proof and empirical evidence to support it in a population study.  The second was to discuss the consequences by performing simulations so that financial modelers using things such as the Fama-French, CAPM or APT would understand the full consequences of that decision.  The third was to discuss…

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Added by David Harris on December 27, 2018 at 7:32pm — No Comments

A generalized stochastic calculus

In 1963 Benoit Mandelbrot published an article called “The Variation of Certain Speculative Prices.”  It is a response to the forming theory that would become Modern Portfolio Theory.  Oversimplified, Mandelbrot’s argument could be summarized as “if this is your theory, then this cannot be your data, and this is your data.”  This issue has haunted models such as Black-Scholes, the CAPM, the APT and Fama-French.  None of them have survived validation tests.  Indeed, a good argument can be…

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Added by David Harris on December 10, 2018 at 2:00pm — No Comments

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