rudi

A Simple Momentum System for Beating the Market

Besides the 8-9% that stock markets make, one can only win what others loose. So who are the loosers when everybody outperformes by 10%?

This is what EMH supporters tell hard cases.

Matt:
"Naturally all analysis is post"
You can develop a strategy with old data, say 1900 to 1980, and then validate the strategy with the data from 1980 until today. There are still some difficulties with that but you test the model on data which you didn't use to build the model, thats essential.
I can't believe I answered that seriously.

If you guys like, we can do an experiment, just say: "I'd like to".

cheers
rudi

A Simple Momentum System for Beating the Market

Ikkyu:
Ok I read the paper a second time:

If you assume a daily standard deviation of say 1%, then you get an approximate standard deviation (ignoring fat tails, using a hundret years, etc.) of sqrt(1*250*100) = 158%. If you would like to do a simple test you would compare the difference of both charts (Exhibit 2 and 3) to twice that standarddeviation. The cumulated returns of the traded series shoud be 300% larger than the buy and hold strategy to be 95% sure, not to have an incidental phenomenon.

To get the mentioned "scientific proof", a lot more would be neccesary. One thing that did never happen is a test of the hypothesis on true validation data. i.e. you apply an (appropriate) econometric test to data, that you never used for your analysis and which you don't use a second time!

"you guys act like Mr. Faber is some kinda snake-oil salesman!! "
Exactly. Because he does marketing for his book and he is unscientific.

I bet he would never put all his money in that strategy and lever. Neither would he (and wouldn't be able to) administer larger sums of money with that strategy.

I am very willing to discuss this further, if it helps to clarify!

A Simple Momentum System for Beating the Market

Those are all ex-post analysis, aren't they? Comparing winners to loosers afterwards for sure shows an outperformance ;)

You didn't reveal any scientific proof because you can't.

cheers
rudi