Comments on: Be Wary of Serial Correlation http://www.ritholtz.com/blog/2008/12/be-wary-of-serial-correlation/ Macro Perspective on the Capital Markets, Economy, Geopolitics, Technology, and Digital Media Tue, 14 Feb 2012 20:08:08 +0000 hourly 1 http://wordpress.org/?v=3.0.5 By: Mark E Hoffer http://www.ritholtz.com/blog/2008/12/be-wary-of-serial-correlation/comment-page-1/#comment-133324 Mark E Hoffer Sun, 14 Dec 2008 21:28:47 +0000 http://www.ritholtz.com/blog/?p=12825#comment-133324 "In case of financial thingelings there should be ‘enough chaos’ because there are always many unforeseen things; if the points are too close together you should investigate further."--Reinko on the flip side, remember: "Stability breeds Chaos." for further, see: Minsky, et al. “In case of financial thingelings there should be ‘enough chaos’ because there are always many unforeseen things; if the points are too close together you should investigate further.”–Reinko

on the flip side, remember: “Stability breeds Chaos.” for further, see: Minsky, et al.

]]> By: Reinko http://www.ritholtz.com/blog/2008/12/be-wary-of-serial-correlation/comment-page-1/#comment-133281 Reinko Sun, 14 Dec 2008 16:04:21 +0000 http://www.ritholtz.com/blog/?p=12825#comment-133281 Beside looking at so called serial correlation, there is a more down to earth way for the math & stat less skilled. If you want to know if there is a simple function that estimates the next return in a (long) time series, that is you wonder if: r_{n+1} = f(r_n), or tomorrow = f(today) you simply plot (r_n, r_{n+1}) for the entire time series. In case of financial thingelings there should be 'enough chaos' because there are always many unforeseen things; if the points are too close together you should investigate further. Beside looking at so called serial correlation, there is a more down to earth way for the math & stat less skilled.

If you want to know if there is a simple function that estimates the next return in a (long) time series,
that is you wonder if:

r_{n+1} = f(r_n), or

tomorrow = f(today)

you simply plot (r_n, r_{n+1}) for the entire time series.

In case of financial thingelings there should be ‘enough chaos’ because there are always many unforeseen things; if the points are too close together you should investigate further.

]]> By: Ziemsdmb http://www.ritholtz.com/blog/2008/12/be-wary-of-serial-correlation/comment-page-1/#comment-133244 Ziemsdmb Sun, 14 Dec 2008 02:01:24 +0000 http://www.ritholtz.com/blog/?p=12825#comment-133244 Notice that since the early to mid-80's the Dow Jones Industrial Average, Nasdaq, and the S&P 500 may suggest serial correlation. Someone should do some mathematical analysis on this. I'd be interested to hear comments on this. As Ritholtz suggests, we're looking for a nice smooth line, with consistent almost unbelievable gains. From the 80s on, if you throw out the bubbles in each of these graphs, it looks very much like a nice pretty line extending to the sky. Year on year growth, as any financial adviser at any mutual fund or retirement investing firm will say, can be expected to be in the 10% range over the long haul - because the stock market always goes up. An interesting note: the invention of the 401(k) in 1978 and almost half of U.S. corporations offering them by around 1983 correlates to the beginning of the last roughly 30 years of increases in the DJI. The universalization of 401(k)'s is today easily apparent. Are all the U.S. workers contributing to 401(k)s and IRAs just a part of one big Ponzi Scheme? Notice that since the early to mid-80′s the Dow Jones Industrial Average, Nasdaq, and the S&P 500 may suggest serial correlation. Someone should do some mathematical analysis on this. I’d be interested to hear comments on this. As Ritholtz suggests, we’re looking for a nice smooth line, with consistent almost unbelievable gains. From the 80s on, if you throw out the bubbles in each of these graphs, it looks very much like a nice pretty line extending to the sky. Year on year growth, as any financial adviser at any mutual fund or retirement investing firm will say, can be expected to be in the 10% range over the long haul – because the stock market always goes up.

An interesting note: the invention of the 401(k) in 1978 and almost half of U.S. corporations offering them by around 1983 correlates to the beginning of the last roughly 30 years of increases in the DJI. The universalization of 401(k)’s is today easily apparent.

Are all the U.S. workers contributing to 401(k)s and IRAs just a part of one big Ponzi Scheme?

]]> By: leftback http://www.ritholtz.com/blog/2008/12/be-wary-of-serial-correlation/comment-page-1/#comment-133223 leftback Sat, 13 Dec 2008 23:06:07 +0000 http://www.ritholtz.com/blog/?p=12825#comment-133223 The SEC are a bunch of Cox Suckers. The SEC are a bunch of Cox Suckers.

]]> By: krbecarson http://www.ritholtz.com/blog/2008/12/be-wary-of-serial-correlation/comment-page-1/#comment-133177 krbecarson Sat, 13 Dec 2008 18:48:22 +0000 http://www.ritholtz.com/blog/?p=12825#comment-133177 hmmm.... my FDIC insured CDs are looking might suspicious right now. hmmm…. my FDIC insured CDs are looking might suspicious right now.

]]> By: VennData http://www.ritholtz.com/blog/2008/12/be-wary-of-serial-correlation/comment-page-1/#comment-133172 VennData Sat, 13 Dec 2008 17:58:39 +0000 http://www.ritholtz.com/blog/?p=12825#comment-133172 I await Lo’s sequel… haha…. to ‘Hedge Funds’ which hopefully will examine the serial increase in government debt since on near-surplus event during those horrible Clinton years. I miss that laugh line “…You may not like Bush, but at least his done a good job with the economy…” anymore. I await Lo’s sequel… haha…. to ‘Hedge Funds’ which hopefully will examine the serial increase in government debt since on near-surplus event during those horrible Clinton years.

I miss that laugh line “…You may not like Bush, but at least his done a good job with the economy…” anymore.

]]> By: DavidB http://www.ritholtz.com/blog/2008/12/be-wary-of-serial-correlation/comment-page-1/#comment-133146 DavidB Sat, 13 Dec 2008 15:43:02 +0000 http://www.ritholtz.com/blog/?p=12825#comment-133146 <i>It should be obvious that an excessively smooth rate of return is an indicator of human intervention — only humans create straight lines.</i> I thought it meant you had the blessing of the Fed <i>resistance is futile - you will be assimilated</i> ....or broke (; It should be obvious that an excessively smooth rate of return is an indicator of human intervention — only humans create straight lines.

I thought it meant you had the blessing of the Fed

resistance is futile – you will be assimilated

….or broke (;

]]> By: Greg0658 http://www.ritholtz.com/blog/2008/12/be-wary-of-serial-correlation/comment-page-1/#comment-133137 Greg0658 Sat, 13 Dec 2008 14:57:44 +0000 http://www.ritholtz.com/blog/?p=12825#comment-133137 DavidB Says: "... he begins to again assert control over what was supposed to be his in the first place" good one ... kinda like resistance is futile - you will be assimilated DavidB Says: “… he begins to again assert control over what was supposed to be his in the first place”

good one … kinda like

resistance is futile – you will be assimilated

]]> By: Mark E Hoffer http://www.ritholtz.com/blog/2008/12/be-wary-of-serial-correlation/comment-page-1/#comment-133133 Mark E Hoffer Sat, 13 Dec 2008 14:42:36 +0000 http://www.ritholtz.com/blog/?p=12825#comment-133133 VoiceFTW: w/ this: "Almost all criticism of both the financial and political world is rooted in the assumption that the major actors are engaging in an up and up game, the game we think they are supposed to be playing. It should be fairly obvious by now that this assumption is certainly invalid in specific cases, and may be invalid more widely." nice point. needs to re-read, thought about, and further contemplated. "Almost all criticism of both the financial and political world is rooted in the assumption that the major actors are engaging in an up and up game, the game we think they are supposed to be playing. It should be fairly obvious by now that this assumption is certainly invalid in specific cases, and may be invalid more widely." VoiceFTW:

w/ this: “Almost all criticism of both the financial and political world is rooted in the assumption that the major actors are engaging in an up and up game, the game we think they are supposed to be playing. It should be fairly obvious by now that this assumption is certainly invalid in specific cases, and may be invalid more widely.”

nice point. needs to re-read, thought about, and further contemplated.

“Almost all criticism of both the financial and political world is rooted in the assumption that the major actors are engaging in an up and up game, the game we think they are supposed to be playing. It should be fairly obvious by now that this assumption is certainly invalid in specific cases, and may be invalid more widely.”

]]> By: VoiceFromTheWilderness http://www.ritholtz.com/blog/2008/12/be-wary-of-serial-correlation/comment-page-1/#comment-133132 VoiceFromTheWilderness Sat, 13 Dec 2008 14:42:10 +0000 http://www.ritholtz.com/blog/?p=12825#comment-133132 Question: is playing a con game reflected in price? Mabye someday, mabye tomorrow. Question: is playing a con game reflected in price? Mabye someday, mabye tomorrow.

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