Talking about Indian Stock Markets and a Ponzi Scheme like the one suggested at the beginning of the thread is what fascinates me. I am analysing stocks too and feel good that I am not in that category of people who fool 50% of the people.

After few days of being a aggressive thread this suddenly simmered down and there has been no post on it since 27th Nov 05. May be this post may trigger life into it again.

Cheers

Bharat Agarwalla

FINANCE: The derivatives bubble

Thanks

Amit Varma is on form at the Indian Economy blog:Consider this experiment: you are a punter, and you get a letter from me saying that I have the ability to forecast the result of all cricket matches, and if you pay me Rs. 10,000, I shall tell you what …

However, between now and then, I managed to find this interview with Fama where he kind of addresses my doubt.

Question:…the predictability of future investment success based on past success…

“One of my students just finished his thesis on that subject, actually. What he found was that performance does repeat when it’s on the negative end! In other works, funds that do poorly, tend to do poorly persistently.

Question : Why couldn’t one postulate that the same would be true at the other end of the spectrum?

One could postulate it, but it doesn’t seem to be true. On the negative end of the spectrum, you have things like turnover and fees and all that kind of stuff, which can explain why you have negative persistence in poor returns.”

Intriguing stuff. Over and out.

During one of my past avatars, I had to review the results of about every top fixed-income money manager in the US (we were selecting about 10 money managers out of hundreds)….survivorship bias is a very real issue…. managers will show the performance records of funds and for those time periods during which they’ve outperformed the index. Became like Lake Wobegon… everyone claimed to be above average

Ram, there’s nothing in my post which brings one to the conclusion that one can predict if a fund will perform poorly. The survivorship bias deals purely with how some people view funds, or whatever. It says nothing about how funds will actually perform.

I have limited knowledge of financial markets, so please consider this as a disclaimer if my query is kinda dumb.

If I understand correctly, and if survivor bias exists, then that means that the poorly performing funds continue to perform poorly over time and therefore, they eventually disappear.

If this is true, then we should be able to predict if a fund is going to perform poorly, because it will consistently show poor performance.Then does that mean we can predict negative trends but not positive ones?

I agree a debate is not relevant to this post. I will try and post something on my blog within the next 10 days, how do I contact you to join the debate? You don’t have your email id posted here, mine is a-m-i-t-k-u-l-z at Y-a-h-o-o (remove the dashes please), please just send a blank email so I will update you when I have posted something. Or I can post a comment on this particular blogpost?

My argument is against pure speculation indexes like the Dow Jones, S&P 500, which carry no meaning to me, that axe is being used to chop people, most of whom have no clue they are being handed out a death of thousand cuts. NOT currency futures (rel. to a nation’s economy) or commodity futures (rel. to farmers) which are useful devices. I also like the concept of naked shorting of stocks which play a huge role in case of market collapses.

To the moderators,
Please enable sending an email to those who give their email (when posting comments here) so that I know when somebody comments here.

Thanks