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I'm seeing interesting backtest results related to this.
What I did was take a group of stocks (that I had pre-screened for
certain minimum RS and fundamental criteria) and allocate them into 2
sets of portfolios of six stocks each. In one set of portfolios I used
ranking based on RS and fundamentals to allocate stocks (top 6 in rank
went into Portfolio 1, second 6 into Portfolio 2, etc.). In the second
set of portfolios I allocated randomly using alphabetical order (first 6
stocks in alphabetical order went into Portfolio 1, second 6 into
Portfolio 2, etc.).
Intuitively, the portfolios based on rank should have been better
performers but it didn't seem to matter. I think that there's simply a
certain unavoidable amount of randomness about the way stocks will
behave that can't be accurately forecast, no matter how detailed the
pre-analysis is.
That would explain why so many mutual fund managers with enormous
resources of fundamental and economic data, computing power, etc., can't
beat an unmanaged SP500 Index fund. It also lends credence to the idea
that consistently superior performance comes from the things over which
investors have direct control, like money management, risk management
and position-sizing.
S.
--- In amibroker@xxxxxxxxxxxxxxx, "Tom Tom" <michel_b_g@xxx> wrote:
>
> To go on dicussion about random walk, nice article at the middle of
this
> page :
>
> http://www.duke.edu/~rnau/411georw.htm
>
> Combine: Random Walk and Prediction.
> Technical analysis... usefull ? Financial information ... usefull ?
Even
> illegal information (hidden to public) .. usefull ? Last one maybe.
Others,
> humm....
> This is what about deals this article.
>
> For me, next theory could be a Chaotic Fractal Near-Random Walk... :
))
> Chaotic : because spurious peak in the data wich can initiate further
> mouvment
> Fractal : year, month, day, hour, minute, sec... same patterns
> Near-Random Walk : Random Walk but predictable, because i don't think
price
> move randomly...
> If they move randomly... tehnical or fundamental analysis are useless,
so
> there is no mean to try to trade at all, (only to give commission to
the
> broker héhé).
>
> Seriously, from this article, what seems emerging from last years, is
that
> price is random walk, but volatility maybe not... It is well explained
in
> the article. Arch and Garch model are mentionned.
> Someone try this on AB ? Trade based only about volatility prediction
(so
> predict risk, and manage portfolio depending those prediction about
> volatility)... and so don't bother with the price random-walk ?
>
>
> Cheers,
> Mich
>
> _________________________________________________________________
> Les révélations de la starac 6 commentées par Jérémy!
> http://starac2006.spaces.live.com/
>
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