<< Chapter < Page Chapter >> Page >

More often than not, we observed a positive correlation for the years inspected (the strongest correlations are those shown in the figures below). It turns out that for certain years (those with a negative correlation), we ought to utilize the “min-median” as a selection criterion. However, this cannot be known ex-ante , and the best we can do is utilize a measure that more often than not, produces above-average results. Here again, we can appreciate how these conflicting effects would average-out with time in a favorable direction, reiterating the fact that a strategy such as this one, if considered, should be evaluated over the long-haul.

Next Year Portfolio Performances vs. Current Year Portfolio Medians (Left: 1998 vs. 1997, Right: 2001 vs. 2000)

Lastly, several evaluations were performed comparing the various max-medians of the portfolios simulated as a function of the number of portfolios run (i.e. J ) and compared to the single-stock max-median (See Figure 6 below), which could, at least heuristically, serve as an upper bound. This resulted (empirically) to be somewhat unstable as there is no guarantee that any thresholds set in terms of percentage to the bound could be attained in any reasonable computing time, mainly due to the fact the after a reasonable amount of simulations (namely J = 500 , 000 and up to J = 2 , 000 , 000 ) the percentages of this single-stock max-median attained depended considerably on the year inspected, making a generalization impossible. The most recent evaluations were performed with stopping after 5 ticks past J = 10 , 000 simulations, which seems stable, however based on aforementioned results it seems to not provide any incremental benefit when contrasted to, for instance a hard-coded constant J stopping rule.

Max-Median Searches as a function of J (Left: 1984, Right: 1991)

Future directions

Several items are open at this point that might be worthwhile investigating in future research. Amongst them are the following (to mention a few):

  1. The identification and investigation of any exogenous variables contributing to any observable associations between current-year portfolio medians and next-year portfolio performances. This is of particular interest as it would provide us with the possibility of meaningfully modifying the simple-criterion to make more informed decisions based on empirical evidence.
  2. Considering data from previous years to make the decision at a given year (rather than only considering data from the previous year) as well as investigating any robust-type interpolations (e.g. median or quantile related regression methods).
  3. Assessing the reproducibility of the procedure (or in general its performance) in other markets (international) and or other indexes (S&P 100, Russel 1000, NASDAQ, etc.)
  4. Investigating a more meaningful rule regarding when to stop the random-search, and how it relates to overall procedure performance.

Conclusions

In this module, we have presented the details of a modified version of the existing Max-Median Rule allowing for the joint selection of securities within this long-term investment strategy. This modified rule, namely the Coordinated Max-Median Rule , essentially bases the median selection criterion on the joint portfolio performance, rather than on single-stock individual performances. We saw that these modifications came with a cost of increased combinatorial complexity and that due to the impossibility of evaluating all potentially-investible portfolios, a parallelized computational approach had to be considered to assess a satisfactory number of portfolios on a yearly basis for potential investment. The algorithm's implementation was discussed, and several conclusions were drawn, the most significant being that our modified algorithm, much more often than not, seems to out-perform the market (in terms of the S&P 500 Index) when a disciplined investor adheres to it for a reasonable amount of time. The data suggest that one of the contributing factors for this on-average higher performance, at least in part, are the correlations between current year portfolio medians and next year portfolio performance, which seem both weak and not always positive. We noted that, more often than not, these correlations tend to be positive, an effect that seemingly averages out in a positive direction over the long-haul. We have also evaluated the performance of the described procedure on real-world S&P 500 data consisting of 43 years, and several potential future improvements, such as further work regarding a more robust stopping rule and the assessment of the procedure reproducibility with other indexes and or markets, were discussed.

Acknowledgements

Special thanks are given to Drs. James Thompson and Scott Baggett, as well as to Drs. Linda Driskill and Tracy Volz, for their overall help and coaching throughout this summer research project. In particular special thanks are given to both the NSF and VIGRE for making this research a reality.

Bibliography

  1. O'Shaughnessy, James P. (2003). What Works on Wall Street. A Guide to the Best-Performing Investment Strategies of All Time (Third Edition).
  2. Thompson, James R., Baggett, L. Scott (2005). Everyman's Max-Median Rule for Portfolio Selection.
  3. Thompson, James R., Baggett, L. Scott, Wojciechowski, William C. and Williams, Edward E. (2006). Nobels for Nonsense. The Journal of Post Keynesian Economics, Fall, pp. 3-18.
  4. Wharton Research Data Services (URL: http://wrds.wharton.upenn.edu/)
  5. Rossini, A., Tierney, L., and Li, N. (2003). Simple parallel statistical computing. in R. UW Biostatistics working paper series, Paper 193, University of Washington.
  6. Tierney, L., Rossini, A., Li, N., and Sevcikova, H. (2004). The snow Package: Simple Network of Workstations. Version 0.2-1.
  7. Knaus, Jochen (2008). Developing parallel programs using snowfall

Questions & Answers

Is there any normative that regulates the use of silver nanoparticles?
Damian Reply
what king of growth are you checking .?
Renato
What fields keep nano created devices from performing or assimulating ? Magnetic fields ? Are do they assimilate ?
Stoney Reply
why we need to study biomolecules, molecular biology in nanotechnology?
Adin Reply
?
Kyle
yes I'm doing my masters in nanotechnology, we are being studying all these domains as well..
Adin
why?
Adin
what school?
Kyle
biomolecules are e building blocks of every organics and inorganic materials.
Joe
anyone know any internet site where one can find nanotechnology papers?
Damian Reply
research.net
kanaga
sciencedirect big data base
Ernesto
Introduction about quantum dots in nanotechnology
Praveena Reply
what does nano mean?
Anassong Reply
nano basically means 10^(-9). nanometer is a unit to measure length.
Bharti
do you think it's worthwhile in the long term to study the effects and possibilities of nanotechnology on viral treatment?
Damian Reply
absolutely yes
Daniel
how to know photocatalytic properties of tio2 nanoparticles...what to do now
Akash Reply
it is a goid question and i want to know the answer as well
Maciej
characteristics of micro business
Abigail
for teaching engĺish at school how nano technology help us
Anassong
Do somebody tell me a best nano engineering book for beginners?
s. Reply
there is no specific books for beginners but there is book called principle of nanotechnology
NANO
what is fullerene does it is used to make bukky balls
Devang Reply
are you nano engineer ?
s.
fullerene is a bucky ball aka Carbon 60 molecule. It was name by the architect Fuller. He design the geodesic dome. it resembles a soccer ball.
Tarell
what is the actual application of fullerenes nowadays?
Damian
That is a great question Damian. best way to answer that question is to Google it. there are hundreds of applications for buck minister fullerenes, from medical to aerospace. you can also find plenty of research papers that will give you great detail on the potential applications of fullerenes.
Tarell
what is the Synthesis, properties,and applications of carbon nano chemistry
Abhijith Reply
Mostly, they use nano carbon for electronics and for materials to be strengthened.
Virgil
is Bucky paper clear?
CYNTHIA
carbon nanotubes has various application in fuel cells membrane, current research on cancer drug,and in electronics MEMS and NEMS etc
NANO
so some one know about replacing silicon atom with phosphorous in semiconductors device?
s. Reply
Yeah, it is a pain to say the least. You basically have to heat the substarte up to around 1000 degrees celcius then pass phosphene gas over top of it, which is explosive and toxic by the way, under very low pressure.
Harper
Do you know which machine is used to that process?
s.
how to fabricate graphene ink ?
SUYASH Reply
for screen printed electrodes ?
SUYASH
What is lattice structure?
s. Reply
of graphene you mean?
Ebrahim
or in general
Ebrahim
in general
s.
Graphene has a hexagonal structure
tahir
On having this app for quite a bit time, Haven't realised there's a chat room in it.
Cied
what is biological synthesis of nanoparticles
Sanket Reply
Got questions? Join the online conversation and get instant answers!
Jobilize.com Reply

Get the best Algebra and trigonometry course in your pocket!





Source:  OpenStax, The art of the pfug. OpenStax CNX. Jun 05, 2013 Download for free at http://cnx.org/content/col10523/1.34
Google Play and the Google Play logo are trademarks of Google Inc.

Notification Switch

Would you like to follow the 'The art of the pfug' conversation and receive update notifications?

Ask