Weekend's
reading package on Trading and Markets, happy hunting.
Previously
on MoreLiver's:
STOCK MARKETS
Quantitative
analysis: stocks that correlate least to certain factors
European Stocks On Verge Of 50%-Off Greek Light
Special – ZH
SocGen:
Greek exit alone would drop European stocks by 10%, but with contagion even 50%
Go Your Own Way:
Correlation Breakdown in the Market – Minyanville
A look at how correlations have been changing. Conclusion: US stocks
are not a bad place to be, when everything else is even worse.
The Biggest Driver Of Equity Returns Since 1970 – BI
SocGen: Invest
in high quality companies with sustainable dividends. Dividends are the most
important component of total equity returns.
Dividend Yield Doesn’t Work, What Does? Three
Key Conclusions – Greenbackd
…the stunning claim that dividend yield doesn’t
predict future returns, but more complete measures of shareholder yield might
hold some promise.
How To Beat Most Active Managers: A Performance
Analysis of Fundamental Indexation With Different Price Ratios – Greenbackd
Most investors, pro’s included, can’t beat the
index. Therefore, buying an index fund is better than messing it up yourself or
getting an active manager to mess it up for you. If you’re going to buy an
index, you might as well buy the best one.
Global Shiller CAPEs – World Beta
Data table:
those Euro countries I’m getting ready to
visit are getting cheap(er)…
The seeds of a new secular bull market are
being sown – Abnormal
Returns
I noted the unusual fact that the dividend
yield on the S&P 500 then exceeded the yield-to-maturity on the ten-year US Treasury note as it
does now. This hadn’t happened in earnest since the 1950s. The question is why?
Here Is What The Real Fear Index Is Saying – ZH
Currently, implied correlation is rising
rapidly - a worrying trend - and has broken back above 70% (a critical
threshold from last September when capital market risk became epic)
Minimum Volatility: A New Approach to Equity
Investing – iShares
Blog
To me, the value of a relatively low-risk
investment like a minimum volatility portfolio is not its low risk, but how its
returns can compare with those of a capitalization-weighted equity portfolio,
or a so-called market portfolio.
Do Cash-Adjusted P/E Ratios Work? – Turnkey
Analyst
I followed up with this comment and googled
around a bit to find articles on the subject. As expected, there is a belief
that cash-adjusted P/E ratios are important for stock performance. This
certainly seems like a reasonable idea.
Advisor Disconnect – Above
The Market
Schwab has issued the results of an interesting
new survey examining the views of high net worth investors (those with at least
$1 million in investable assets) and their advisors. Some particularly
noteworthy findings follow. Note the
frequent disconnect between advisors and their clients.
Goldman Sachs Very Important Short Positions
For Hedge Funds: Q1 2012 – market
folly
VALUE
The Superinvestors of Graham-and-Doddsville
Revisited – Greebackd
compared
the performance of a group of “true-blue, walk-the-walk value investors” (the
“Goldfarb Ten”) and “a group of large cap growth funds” (the “Group of
Fifteen”).
Searching for Rational Investors In a Perfect
Storm: Value Investing Through 1999-2003 – Greenbackd
Nardin Baker on the low volatility anomaly:
part two – Abnormal
Returns
Part 1 here.
Calculating Value Portfolios – Why Details
Matter – Turnkey
Analyst
both the book and price data used to form B/P
and value portfolios are always between 6 to 18 months old… the standard method
of constructing HML can be improved by using more timely price data.
TRADING
The Rules, Part XXXII – The Aleph Blog
The recent case of JP Morgan’s hedging
activities bring to light an observation that should be clear to all but
isn’t. Hedging only works when you are
small relative to the markets in which you hedge.
Happy People Make Terrible Traders – The
Psy-Fi Blog
People who are happy are more confident and
expect to make more money by trading, and anticipate taking lower risks in
doing so. This result ought to be enough to depress most people, but most
people are optimistic and don’t depress easily. This is especially true if they
make money on their random trades, because that makes them happier, more
optimistic and more prone to trading.
There is a difference between a good trade and
good trading – Factor
Many novice pedestrian traders focus on the
next position. Consistently success traders focus on the process and care
little about the outcome of the next trade. The distinction is enormous.
Should Stocks Trade in Increments of $.0001? – Marginal
Revolution
Chris Stucchio, a high-frequency trader, argues
that the sub-penny rule, SEC Rule 612, “essentially acts as a price floor on liquidity – it is
illegal to sell liquidity at a price lower than $0.01.” As a result, traders
compete on speed (latency) rather than on price.
Compound Experience, Not Just Interest – The
Reformed Broker
Start early
– you have less to lose and a lot to learn.
Mutual Funds Promised Haven From Speedsters – WSJ
The group says it is seeking to protect fund
managers by excluding so-called high-frequency trading firms, which use
powerful computers to jump in and out of markets at lightning speeds.
HEDGE FUNDS
Five Questions: D. E. Shaw’s Peter Bernard – Institutional
Investor
Long before even some of the largest financial
services firms put sophisticated risk mitigation programs into place, Peter
Bernard, chief risk officer of the D.E. Shaw group, was blazing a trail at his
firm with an innovative approach to analyzing what can go wrong.
May Hedge Funds Performance Update: Red Is Bad – ZH
Book Review: The Alpha Masters – The Aleph
Blog
The Alpha Masters: Review of Maneet Ahuja's
Book – market
folly
A must-read book on some of the top hedge fund
managers in the game.
OTHER
The Big List of Behavioral Biases – The Psy-Fi Blog
Ever-growing
list of irrational or, at least, slightly odd behaviours in the sphere of
investment
Banking Burnouts Blow Away Myths of Wall Street
Glamour – View
/ BB
Is Insider Trading Part of the Fabric? – NYT
Ted Parmigiani, an analyst at the former Lehman
Brothers, spent two and a half years giving the S.E.C. information about what
he contended was insider trading at the firm. But the S.E.C. ultimately decided
against filing a case.
good derivatives – research
puzzle
Sandor talked about what makes for a “good
derivative.” As befits his key role in
the development of financial futures, his answer was straightforward: “Transparent, regulated, and centrally
cleared.” And bad ones are “opaque,
unregulated, and have insufficient capital” backing them up.
Derivatives need a priest – Macro
Business
The assumption is that the global financial
markets are there to serve capital, not people (if it benefits people, fine,
but that is after the fact). It is conceived as a giant piece of machinery
whose behaviour can be successfully interpreted by those clever enough. Of
course, it is an illusion. The machinery is impelled by people trying to
interpret the machinery; that is why forecasts and predictions have such a poor
track record.
The Upper Tribunal has directed the Financial
Services Authority (FSA) to fine ex-UBS professionals Sachin Karpe £1.25m
and Laila Karan £75,000 and ban them both from performing any role in regulated
financial services for failing to act with integrity and for not being fit and
proper persons.
My Speech to the Finance Graduates – Project
Syndicate
Robert J. Shiller: Beyond compensation, the next generation of finance professionals will
be paid its truest rewards in the satisfaction that comes with the gains made
in democratizing finance – extending its benefits into corners of society where
they are most needed.
The Whiskey Breath of Wall Street: What the
Invention of Bourbon Has to Do With Credit Derivatives – Minyanville
Davis and Nairn, Templeton’s Way with Money – reading
the markets
Book
review: Sir John Templeton was one of the
most successful fund managers of the twentieth century. At his peak, during the
two decades after his move from New York to the Bahamas in the late 1960s, he outperformed the market by 6% per annum. Over his
career he outperformed by 3.7% per annum.
Blood in the Water – Vanity
Fair
The op-ed heard round the world—Greg Smith’s
scathing New York Times attack on Goldman Sachs, his employer of nearly 12
years—dealt another blow to the firm’s reeling reputation. Now the questions
are louder than ever: Will C.E.O. Lloyd Blankfein have to go? Who might succeed
him? And does it matter?
What Gamblers and Weather Forecasters Can Teach
Us About Risk – Slate
An interview with the creator of the “risk
quotient” intelligence scale.
101 ETF Lessons Every Financial Advisor Should
Learn – ETFdb
Trading System Backtesters and Updates – World
Beta
The Costs of Active Management – Turnkey
Analyst
It is strange how in light of evidence, people
continue to pay these outlandish performance fees in the hope that they will
beat the market.
Shadow Banking by RepoWatch