Daily Speculations The Web Site of Victor Niederhoffer & Laurel Kenner Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter;  a forum for us to use our meager abilities to make the world of specinvestments a better place.

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Posts by Victor Niederhoffer (Spring 2004)

06/04/2004
Splits

Many areas of potential cautions in the splits used in various systems. For example. one is dubious that after splits based on numbers of days, up or down, bonds or some other commodity, and price lower than higher (if not using continuous prices), that these four metalevels of splits would devolve to a mere 50% chance by randomness.

April 2004
One of the Things I Enjoy...

is noting the differences in style in Doc Greenspan's speeches. Sort of like one of the time novels, a la A Connecticut Yankee in King Arthur's Court, where a person is thrust into a different century. He'll be going along like a man of his age without training, with old man's disease, which some take for intentional obfuscation (his stuff), when all of the sudden he'll start talking about the covariance matrix between heteroscedastic market moves, or how Ito's lemma explains the negative short-term co-movement. What's obvious is that he's inserting a passage from his research department intact into his speech. He's so tone-deaf, however, that it jars. when are people like himself, Buffett, and my former boss going to retire gracefully and devote themselves to chasing women before they lose all their dignity? What a terrible thing that Doc Greenspan rejected our suggestions in 2000 to trade places with Patrick Ewing, then center for the Knicks. We reasoned that each could do the other's job better. Ewing at least had the grace to retire. -- Victor Niederhoffer

4/26/2004 14:35
A Sidelong Glance from the Mistress:

One must always admire the pulchritude of the market mistress as she jumps above the within-day high of the last week, runs against the 10-day high of 1144 to trigger stops and then arabesques down a nice 1% to give you hope that the next time you meet her, she or her scions will be more forthcoming. -- Vic

4/14/04 10:41
Nobody Asked Me, But...

1. Many round numba broken today with fours. DAX below 4000, and above, and below. Gold, same things vis-a-vis 400. And bund, vis-a-vis 14000. If Mr E can make a fortune based on pretty pink ladies than I can 4 it.
2. Michael Pomada. I don't know him. But he's applying for a job with hedge fund people. And he's sent me some research, some of best I've seen on round numbas. Whoever gets to hire him is going to be very lucky.
3. Among the more interesting examples of convergent evolution are the numerous organisms that have completely different ancestors based on DNA that have evolved identical structures to eat ants. The anteater, pangolin, aardvark and the echidnae all have long moist tongues, muzzles, pointy noses, claws on feet, iron digestive systems and no facial hair. I nominate the pit trader in markets all over the world as closest to the anteater and they eat the very unpleasant public that buys at highs and sells at lows based on systems. Such species grew very fat the last two days .

4/7/2004
Opera 101 and Days of Week

In my constants effort at self improvement, including staying awake at operas, I
read Opera 101 by Plotkin. A  nice discussion of day-of-week effects on opera appears there. "On Monday and Tuesday, one tends to find dedicated opera-goers. on Wednesday and Thursday, a cross section. These audiences listen carefully and may be reserved. Some have to get up early. On Fridays and Saturdays, one sees subscription audiences. People are there as much because of the night of week as because of what is on stage. They are noisier and more demonstrative. They may even applaud the scenery."

Of course, this immediately brought back many fond memories of Bacon talking about days of week and races in the day and who, based on payday, has to get even. Naturally, I studied the 110 articles on google on day-of-week effects on stocks. A spec duo on MoneyCentral provided updated results for 1998-2003 and found all days closely matched, non significantly different from 0.

The Yuan paper "Are Investors Moonstruck?" tested full moon effects and concluded that days surrounding full moons are bearish relative to days surrounding new moons. They lump all results together for all countries and don't the effect's dissipation over time, nor is their alternate hypothesis overly defined in advance. They find returns of 6% a year around new moons and 3% a year around full moons starting with daily data from 1973 to 2001. They conclude the effect is slightly higher for small companies than big, and that the effect is strongest in the few days around the new moon, going up to 1/5 of a % a day a few days after the new moon. They look at regression coefficients and find it improbable that 42 of 47 are in the retrospectively predicted direction. But because of  co-movements between markets, this test isn't a good one. A related paper, "The Day of the Week Effect and Stock Market Volatility," by Hatil Kiymaz, is a horse from a similar garage with significant effects on volatility by day of week. Goodness forbid that authors should look at momentum classified by day of week, as Frank Cross and I did in 1965, in The Journal of American Statistical Association proceedings. (Thereby hangs a tale.) Thus, the study of opera can lead to wonders if not profits. -- Victor Niederhoffer

3/19/2004
Principles of Investing

One of the cardinal principles of investing I believe in relative to markets is that a meal for a lifetime is better than a meal for a day. Hardly any systems of making money in markets are good for the future, because of ever-changing cycles, changed external conditions, intense competition, the market's necessary tendency to take your chips regardless of what you’re doing (to pay its overhead), the changed paths of least resistance, the struggle for existence that always gives flexible people more survival than inflexible, the existence of mixed probability distributions, the difficulties of predicting uncertainty and risk, a general orneriness in such unfathomably complex things as weather, oceans, and markets, and other factors. That’s one reason I don’t unload x systems on poor readers in my work, or encourage or approve of others doing so, especially when they have no adequate understanding of variability and uncertainty. -- Victor Niederhoffer

4/5/2004
Friday's Bond Crash and  the Effects of Belief

Ten-year Treasuries had their greatest drop in 10 years on Friday. Those who study this the most, and have the most to lose if they're wrong or right, decided, putting one thing with another, that it was the strongest bellwether of economic strength of the past eight years.  It leads one to reflect on how those with a preconceived view can interpret reality so differently from the actuality. Recall psychologist Leon Festinger's study of cognitive dissonance in cults: When the flying saucers failed to show up as predicted, the Keech cult  switched to preaching about how the soundness of their previous views had been upheld so that the spacemen would not need to destroy earth for awhile. A good lesson we all should learn as to how in real life people react to false beliefs of a cardinal nature, and why speculators by survival instinct tend to keep their feet on the ground and their hands to the wind.           

Now, bullishness among the bond mavens is at its lowest level in eight years. This would call for some testing. Presumably this is quite bullish for bonds, and bearish for stocks. I  tested the waters on this mien at the close. It calls for testing at a more microscopic level vis-a-vis the effect of the consensus on this market and others. -- Vic

3/26/2004
News Follows Price

Not to be overly descriptive or anything, but on March 10, June S&P futures closed at a four-point discount at 1119 to the cash index of 1123.

This about the widest discount I've seen in the last two  years.

Why did this happen, if not maneuvers of the boys from terror land? I tell the anecdote of how gold went through roof on Friday before weekend, two days before a Libyan jet was hit in the Mediterranean. And then it turns out that there had been buzzing upon buzzing the previous week so this wasn't a cardinal event after all.

My Mideast sources sometimes joke that OBL is a fiction that we keep up the same way we used the Republican guards in Iraq as a crutch during the first Iraq invasion -- for guarding of the Republican party.

When a price is low, horse traders know to look for paint over the grey or blindness in the eyes, or teeth not fixed. -- Victor Niederhoffer