One thought on “When Investors cannot keep up with “News”!

  1. The trouble with this blog is that it gives a simple graph and interpretation that seems to support a simple idea, but, like the Zero Hedge site, it may be misleading.

    The author may or may not be aware that best practices now call for rejecting the null hypothesis at not the usual 95% confidence but 99.7% confidence (t-stat >= 3).

    This new standard is also for theoretical results, not just mere observations. See the cite below, available online. Does Marcus Nunns’ posts comport with this new standard? I doubt it. He’s probably content with mollifying his readers with cute ‘little stories’.

    RL

    “The Cross-Section of Expected Returns”, Campbell R. Harvey, Yan Liu, Heqing Zhu
    April 20, 2015
    Abstract:
    Hundreds of papers and hundreds of factors attempt to explain the cross-section of expected returns. Given this extensive data mining, it does not make sense to use the usual criteria for establishing significance [t-stat of 2 or 95% confidence]. What hurdle should be used for current research? Our paper introduces a new multiple testing framework and provides historical cutoffs from the first empirical tests in 1967 to today. A new factor needs to clear a much higher hurdle, with a t-statistic greater than 3.0 [i.e. about 99.7% confidence]. We argue that most claimed research findings in financial economics are likely false. Keywords: Risk factors, Multiple tests, Beta, HML, SMB, 3-factor model, Momentum, Volatility, Skewness, Idiosyncratic volatility, Liquidity, Bonferroni, Factor zoo.

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