Warning: Physics Envy May be Hazardous to Your Wealth!

Lo, Andrew W.; Mueller, Mark T.

doi:10.2139/ssrn.1563882

Cited by 72 publications

(60 citation statements)

References 50 publications

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“…The EMN monthly excess returns are higher than those of the bond index, in line with the findings of Brooks and Kat (2001). Our results confirm and extend those of Lo and Mueller (2010), which demonstrate large returns during the mid-1990s that significantly decline over time. The average returns and Sharpe ratios of statistical arbitrage decline steadily from 1995 through 2007.…”

Section: Discussionsupporting

confidence: 89%

Neutrality of equity market neutral strategy to period and index

Muhtaseb

Colborn

2012

J Deriv Hedge Funds

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and former research director for Global Fund Analysis in London, England. His primary research interest is in portfolio management, especially hedge funds performance, activism and fraud. He has published many research articles in leading journals and run executive seminars and CFA review courses in major financial centers. He holds a PhD in finance from the University of Tennessee, Knoxville. He is a CFA charteholder and CAIA member. ABSTRACT This study examines the performance of equity market neutral (EMN) hedge funds by estimating alpha and beta, using monthly excess returns of the Fidelity Investments Spartan s US Bond Index Fund, 1 the S&P 500 index and two indices of EMN strategies. The study investigates how much exposure to systematic risk is experienced by EMN hedge funds and hence by the investors in such funds. In addition, the article ascertains the stability of the estimated betas of EMN hedge fund indices. Results show that EMN fund indices had no systematic (stock and bond market) risk before the subprime mortgage crises of 2008. During the crises, the DJ Credit Suisse EMN index showed a positive beta in excess of 0.4, yet the Greenwich Van Hedge EMN index showed a beta less than 0.1. Similarly, the DJ Credit Suisse EMN index had no bond market beta up until November 2008. The Greenwich Van Hedge EMN index had almost no exposure to the market. The results were sensitive to market conditions and the EMN index. DJCS and GVH both had positive stock market alphas, which turned insignificant around October 2008. Similarly, both indices had positive bond market alphas, which turned insignificant around August-November 2008. Robert 'Eric' Colborn

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Section: Discussionsupporting

confidence: 89%

Neutrality of equity market neutral strategy to period and index

Muhtaseb

Colborn

2012

J Deriv Hedge Funds

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“…The mathematical techniques used nowadays in the study and the future behaviour of exchange-traded options markets, derivatives and other structured financial products, are based to a large extent on mathematical methods popularized by Samuelson (see also Lo and Mueller, 2010).…”

Section: Foundations Of Economic Analysis (1947) One Of the Principamentioning

confidence: 99%

From Edgeworth to econophysics: a methodological perspective

Drakopoulos

Katselidis

2015

Journal of Economic Methodology

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Although most of the marginalist economists' methodology was influenced by 19th century classical physics, the work of second generation marginalist Francis Ysidro Edgeworth represents the highest point of classical physics influence to the development of mainstream economic methodology. Edgeworth's close parallelism between celestial and social mechanics expressed in his analogies between utility and energy and the principle of utility maximization to maximum energy, are important indications of the physics scientific ideal for economics. Subsequent leading theorists were not as explicit, although economic theory continued to be influenced by physics scientific ideal as the work of Pareto, Fisher and Samuelson indicates. However, the physics methodological framework has made a recent reappearance in the relatively new field of econophysics. Although there are methodological similarities, there are also important differences between mainstream economics and econophysics. Econophysicists' emphasis to statistical mechanics rather to mechanical models, their reservations towards rational agent theory and their rejection of many standard assumptions of mainstream economics, are examples of such differences. This might also explain the resistance of mainstream economic theorists to incorporate econophysics into economics. The paper examines the above from a methodological viewpoint. It also discusses the possible reasons for this historical development and its implications for economic methodology.

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“…Several people have proposed classifications or taxonomies of uncertainty for social and socio-environmental systems (e.g. van der Sluijs, 1996;van Asselt and Rotmans, 2002;Regan et al, 2002;Meijer et al, 2006;Maier et al, 2008;Lo and Mueller, 2010). Broadly, they all group the 'kinds' of uncertainty into two strands -epistemic and aleatory -that are coherent with use in the bio-physical sciences.…”

Section: Conceptualising Uncertaintymentioning

confidence: 99%

Social science perspectives on natural hazards risk and uncertainty

Jackson¹

2013

Risk and Uncertainty Assessment for Natural Hazards

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Warning: Physics Envy May be Hazardous to Your Wealth!

Cited by 72 publications

References 50 publications

Neutrality of equity market neutral strategy to period and index

Neutrality of equity market neutral strategy to period and index

From Edgeworth to econophysics: a methodological perspective

Social science perspectives on natural hazards risk and uncertainty

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