Academic Financial Axioms

[rokid]

This was posted on the Fundalarm bulletin board. I think it is a very good summary of the current state of academic financial research.

http://www.fundalarm.com/wwwboard/messages/174127.html

Read at your "market timing" peril. :cheesy:

 

[rokid]

The attached is a reformatted version of the content from the previous Fundalarms link courtesy of the Boglehead Forum. It's much easier to read.

However, philosophically, it's in direct opposition to market timing and technical analysis.

 

[fabijo]

Rokid, looks like lots of discussion has been sparked on that discussion board around these axioms. It's true that we cannot predict the short term, but that long term the averages work out. Everybody wants that golden prize of knowing how to predict those sudden, unpredictable movements.

I think I read somewhere that the CAPM is used by about 80% of the professional world. Since the CAPM is a general guide, many companies that use it give their own little tweaks to the model to make it kind of work.

Thanks for the links.

 

[rokid]

fabijo,

You're welcome. I thought it was a really nice summary of all of the important research.

Axiom #8, size, value, and momentum are thought to predict 99% of a portfolio's return. I tried to apply the Fama/French analysis (beta, size, and value) to the top TSPers last year. However, beta plus the Fama/French factors only appeared to explain about 40% of the result, i.e. they didn't really explain anything! :toung:

Thanks for the tip on the Axiom discussion. I'll go check it out.

 

[rokid]

Recently, I went to John Norstad's finance page. John is a software developer at Northwestern University. In addition, he's interested in finance.----Jim

http://homepage.mac.com/j.norstad/finance/index.html#prob