Feb

6

What is Different This Time?

 This chart illustrates one of the problems with the equities market of late. The [unnamed]  variable shown was a model of consistency up until September 2010, and then started behaving less reliably. The data represents actual transactions (all of them), but would be unknown to most practitioners. Thus it is not the case of a variable being followed by so many that it becomes second-guessed and thus unreliable.

For what it's worth, this is NOT one of our decision variables.

Bill Rafter is president of Mathinvestdecisions.Com, a quantitative investment firm.


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3 Comments so far

  1. dave whitesel on February 7, 2011 9:25 am

    Bill for those of us outside your loop could you explain this chart and describe the unknown variable?

  2. James Bitumen on February 7, 2011 12:59 pm

    Daily Range of SPX/ESA Index.

  3. Bill Rafter on February 7, 2011 4:33 pm

    The key item is not what the dataset is, but that it is a broad-based market indicator that behaved quite steadily for some time (I only showed part of the data) and then did not do so. The chart simply makes the statement that the market pre-September 2010 is different from that post-September 2010. Most practitioners do not see these things: most see a car and do not bother to look under the hood.

    I am opposed to giving away all of the information. Although at this time we do not use this data in our trading, our abstinence of its use is mostly a result of not having enough observations of a particular occurrence. When we get the requisite number of observations, we may very well use it. We look at lots of things for years before using them.

    The raw data is derived from all equity options of customers and firms. The raw data has been smoothed with one of our non-lag tools. The raw data is freely available to anyone who looks for it. Our tools have been described in articles and are available in our software, which we have been giving away for years.

    Bill Rafter

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