Week 6
Module 1
1.1
- How to assess an event study (with a market simulator)
- Event study allows you to test hypotheses:
- What if Market Bollinger value is high
- Look at equity and market to see if any discrepencies.
- But stock Bollinger value is low?
- Buy signal?
- Simulator lets you operationalize
- Transition from hypothesis to strategy
- Buy/sell
- How long to hold?
- How much to allocate to each bet?
Module 2
2.1
- Fundamental law of active portfolio management.
- Warren Buffett quote: "Wide diversification is only required when investors do not understand what they are doing."
- Thought experiment:
- Stock trade = bet
- Coin flip = bet
- Uncertainty = beta
- Coin bias = Alpha
- Reward/Risk measures:
- Possibility to lose everything
- Standard deviations of returns
- Alpha is lower you should can make more bets?
- --Opinion-- didn't really follow this lesson all that well.
2.2
- Active portfolio "investors" are not considered investors in Warren Buffett's eyes.
- Jim Simons and Warren Buffet offer about the same performance
- Buffet -- 54% in just 3 stocks (2010)
- Simon trades actively -- 100ks per day
- Algorithmic trades can "scale"
- The two can be related with "the fundamental law"
Module 3
3.1
- Covers CAPM.
- Understanding beta and alpha of a portfolio
- Didn't follow this so well. Really not interested.
3.2
- Active Portfolio Management recommended again
- More on using CAPM to build a portfolio (shorting companies, "longing" companies)
- Hedge fund stuff. Not particularly interesting to me at this stage.