RiskAffine's Market Wisdom - Some Thoughts on Economic Causation

I recently came across your blog and have been rea...

2009-01-09T01:11:00.000-05:00

I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

Susan

http://www.car-insurance-choices.com

certainly! those CEO's have just as poor incentive...

2009-01-05T13:40:00.000-05:00

certainly! those CEO's have just as poor incentives for proper decision making. all of this suggests that time frame (and some kind of long memory for decision outcomes) should finally make its entrance into compensation schemes

Thanks for the clear and convincing explanation. I...

2009-01-05T11:59:00.000-05:00

Thanks for the clear and convincing explanation. I suspected that such motivations were at work.

Very similar incentives exist for corporate executives with respect to their stock options and bonuses. We need the same sort of "clawback" restrictions for risky or short-term decisions they are tempted to make.

One interesting note that is almost always forgott...

2009-01-04T16:59:00.000-05:00

One interesting note that is almost always forgotten in the seat belt argument, and which makes it an incorrect metaphor for almost every other example, is the physics of collisions. If you have a higher speed than the car you hit, assuming a head on collision, the other car is more severely damaged. Driving slower than others with or without a seat belt would therefor increase the expected level of injury in a collision, thus changing the rationality of the shift in the danger curve.
This does not necessarily change the core argument of the seat belt debate, as there is a "risk illusion" argument to be made, although there are arguments for it doing so, but it most certainly does make the metaphor invalid.

As Adam Smith himself once put it, "the enemy of a good theory is promiscuous analogizing" (Warsh, David. Knowledge and the Wealth of Nations, p33)

Your medical example simply avoids the potential danger to and from others, and needs a quite different metaphor.

Good interpretation of data. Information provided ...

2009-01-03T07:00:00.000-05:00

Good interpretation of data. Information provided is of use. Thanks for the post.
http://shortcuttoprofits.com

Excellant!! Simply acknowledging what we all know,...

2008-12-31T07:14:00.000-05:00

Excellant!! Simply acknowledging what we all know, but consistently deny. Everything cycles. People do not seem to appreciate the highs to the degree that they cry about the lows. Did the $50,000 per year wage earner ever plan on paying for the #300,000 house?

it depends on what you define as efficient. if you...

2008-12-26T22:38:00.000-05:00

it depends on what you define as efficient. if you are referring to the strong form of efficiency hypothesis then it almost certainly doesn't exist.

in reality what we see is a overlapping of very tiny periods of efficiency. at any given moment x number of shares need to be bought, and y need to be sold. making no assumptions as to why these amounts are offered, if x>y, then the price will rise as the market temporarily clears itself.

equilibrium theory is a very clever fallacy.

@RiskAffine Thanks for the quick blog post. It gen...

2008-12-26T11:58:00.000-05:00

@RiskAffine Thanks for the quick blog post. It generally makes sense, but it seems like profit taking on AMZN happened pretty quickly.

My original thought was that traders reacted too quickly to the press release saying Amazon had a record season in terms of orders. Stock shot up 5%, but then everyone realized Amazon didn't release revenue or profit numbers, creating some caution in trading.

To me, if the market were efficient it would have only gone up the 2.5% in the beginning - good results, but suspect without the profit numbers.

2008-10-08T22:50:00.000-04:00

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what a freakin' recap. This is solid forensics. h...

2008-10-08T21:20:00.000-04:00

what a freakin' recap. This is solid forensics. how do you see the global reaction to this playing out through the next few weeks? do you see any signs of stability?

@charlie

we should bounce at some point th...

2008-10-08T00:15:00.000-04:00

@charlie

we should bounce at some point this week or else the market is REALLY in trouble

@dragonsbane

if you are using the VIX as a proxy for "volatility" then i agree with you, as high VIX readings correspond to declining prices. this is because the VIX measures the volatility implied by option prices. The spreads charged by option writers tends to expand during market stress, and thus premiums go up. Higher premiums in the absence of other changes leads to higher implied vol.

i prefer to use empirical 1 or 5 minute volatility ((high - low)/(open)) as my proxy for true vol. This way there can be high vol up markets and low vol down markets.

this makes sense: practically you have seen up markets that just fly upward and bear markets that trickle down the drain. we just happen to be in the high vol regime now.

2008-10-07T07:16:00.000-04:00

This comment has been removed by the author.

As an employee, I can tell you the real cash to be...

2008-10-07T00:23:00.000-04:00

As an employee, I can tell you the real cash to be made here was if you bought on Sept. 18th at $29. :P

I disagree with your additional level of complexit...

2008-10-07T00:17:00.000-04:00

I disagree with your additional level of complexity. I think you will find that throughout history, bull markets tend to correspond with periods of low and decreasing volatility (thus a low and decreasing vix), whereas bear markets correspond to increased volatility. Regimes in which bull markets have high volatility or bear markets have low volatility tend to be transitory and suggest a change between actual bull and bear market is either imminent or in the process of occurring.

Just some food for thought,
mythmanlegend

you forgot about the fifth market model:

Hi...

2008-10-06T12:05:00.000-04:00

you forgot about the fifth market model:

High Volatility & BullS***

how you like them apples? What signs are we looking for this week that holding fast in bear mode is the right course of action?

@david: with 6 stocks you can do it manually; but ...

2008-10-06T01:27:00.000-04:00

@david: with 6 stocks you can do it manually; but for more you can download a free program like r-squared or a not free one s-plus (both based off same language) that have built in MST programs. another method is to "construct" a proxy by combining other stocks into a linear model (look up cointegration and trading)

@funny circus bears: if you think that buying pot whenever it goes up is a viable strategy, then by all means go for it. but thats not what we're talking about here. this strat uses the fact that we've established empirically a leader/lagger relationship that we are exploiting; we're using the information received from POT to trade AGU. If it looks as though AGU should be higher given POT, we buy. Same on the downside.

I understand that, but how could I find another "p...

2008-10-05T21:18:00.000-04:00

I understand that, but how could I find another "pot" lets say in oil. etc. is there a program I can run?

If POT is "ripping" then buy it. What is the purp...

2008-10-05T00:33:00.000-04:00

If POT is "ripping" then buy it. What is the purpose of a proxy?

do you Use a statistical technique known as a mini...

2008-10-04T22:57:00.000-04:00

do you Use a statistical technique known as a minimum spanning tree for all different sectors. Is there a program that can find this for other sectors?