1. Empiricism : From Newton to Taleb; & its Relevance for Quants! From Wikipedia: In the philosophy of science , empiricism emphasizes those aspects of scientific knowledge that are closely related to experience, especially as formed through deliberate experimental arrangements. It is a fundamental requirement of the scientific method that all hypotheses and theories must be tested against observations of the natural world , rather than resting solely on a priori reasoning , intuition , or revelation . Hence, science is considered to be methodologically empirical in nature. Allegiant Asset Management Company is a SEC-registered investment advisor and a subsidiary of National City Corporation. Wikipedia is a registered trademark of the Wikipedia Foundation, Inc. Steven P. Greiner, Ph.D. [email_address]
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8. Average Decile Model XS Returns – Seemingly Looks Good! Source: Allegiant proprietary information
9. Spread of Decile Model XS Returns – Okay Still! Source: Allegiant proprietary information
10. Raw XS Return as function of Model Stock Rank – argh.. Source: Allegiant proprietary information
15. The 95% Confidence Interval about the Mean! There’s some overlap, so it’s possible they have the same mean! Top Decile Mod_1 (-0.74) Top Decile Mod_2 (5.92) Source: Allegiant proprietary information
18. A Value Model Top (red) & Bottom (dots) Decile XS Return Source: Allegiant proprietary information
19. Examine a “Valuation” Component of the Model at Different Times.. Working… Working… Working… Source: Allegiant proprietary information IC’s vary wildly through time….
20. CONCLUSION : These data are representative of when factors lose their efficaciousness at various points in history. One would expect the slopes of return vs factor rank to fall off during the bubble, 2003 and 2006 to the present, and indeed they do. The chart below shows the R 2 ’s of regressions of the factors vs excess return for each of the six time periods. Notice that the largest R 2 ’s are in the early years, after the bubble and in 2004 and 2005, while the smaller relationships hold for the problematic years during the bubble, 2003 and 2006 to the present F1 F2 F4 F5 F6 F7 F8 F9 Source: Allegiant proprietary information
21. [ ] √ n ● IC ● TC = IR Model TC (i.e. optimization) [ ] Portfolio [ ] Bench + TC: Effectiveness of Portfolio Construction Process IC: Effectiveness of Alpha Model
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27. Lowering the Std-Dev of Returns can be a More Fruitful Research Objective then Raising the Average Return of a decile……. Source: Allegiant proprietary information Impact Of Lower Deviation of Returns………. “ Our Customer’s feel the Variance, Not the Mean ……..”
![Empiricism : From Newton to Taleb; & its Relevance for Quants! From Wikipedia: In the philosophy of science , empiricism emphasizes those aspects of scientific knowledge that are closely related to experience, especially as formed through deliberate experimental arrangements. It is a fundamental requirement of the scientific method that all hypotheses and theories must be tested against observations of the natural world , rather than resting solely on a priori reasoning , intuition , or revelation . Hence, science is considered to be methodologically empirical in nature. Allegiant Asset Management Company is a SEC-registered investment advisor and a subsidiary of National City Corporation. Wikipedia is a registered trademark of the Wikipedia Foundation, Inc. Steven P. Greiner, Ph.D. [email_address]](https://image.slidesharecdn.com/forlinkedin-124490755238-phpapp02/85/barra-presentation-1-320.jpg)
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