[R-SIG-Finance] making sense of 100's of funds

[Patrick Burns]

If I'm correct that New York and Sydney do not have
any overlapping hours, then you have hopped back out
of the asynchrony problem.

Pat

paul sorenson wrote:

> Patrick,
>
> That is an interesting paper, in this case I was asking myself the 
> question, "if I know that today's Melbourne prices are correlated to 
> yesterdays  NY prices, is there a possibility of taking advantage of 
> that?"  That is, not so much from putting a portfolio together, but 
> daily investment decisions.
>
> cheers
>
> Patrick Burns wrote:
>
>> paul sorenson wrote:
>>
>>> Probably not unsurprisingly, the correlation between the SP200 and 
>>> the global share fund daily returns goes up (from 0.16 to 0.42) when 
>>> I insert a 1 day lag.
>>>  
>>>
>>
>> Careful.
>>
>> There are asynchrony issues with global data, which definitely affect
>> the correlation (it is too low). Presumably the global return series has
>> asynchrony issues all by itself.
>>
>> The working paper for Burns, Engle and Mezrich (1998) is available
>> at http://www.econ.ucsd.edu/papers/dp97.html
>>
>> That paper talks about the effects of asynchrony and proposes a
>> method of backing out data without asynchrony.  Our investigation
>> suggested that using weekly data is adequate for avoiding asynchrony
>> effects.
>>
>>> http://www.metrak.com/tmp/exch10.png has plots produced by ccf().
>>>
>>> Brian - if I want to look at returns over a different period using 
>>> PerformanceAnalytics when the base data is daily, is the normal 
>>> strategy just to undersample prices before calling CalculateReturns?
>>>
>>> I am guessing that the correlation of the SP200 and global share 
>>> fund would increase when looking at a longer time period.  I also 
>>> want to compare it with some other data which comes out monthly.
>>>
>>> cheers
>>>
>>> BTW sorry if I am boring you guys with what must be very basic stuff 
>>> - just tell me.
>>>  
>>>
>>
>> Asynchrony is neither basic (i.e., well-studied) nor very well 
>> appreciated.
>> I don't vote this message boring.
>>
>> Patrick Burns
>> patrick at burns-stat.com
>> +44 (0)20 8525 0696
>> http://www.burns-stat.com
>> (home of S Poetry and "A Guide for the Unwilling S User")
>>
>>>
>>> Brian G. Peterson wrote:
>>>  
>>>
>>>> paul sorenson wrote:
>>>>  
>>>>
>>>>> I ran a pairs plot on the daily fund returns as well as 
>>>>> calculating the correlation coefficient (Pearson).
>>>>>
>>>>> The pairs plot is reproduced at 
>>>>> http://www.metrak.com/tmp/exch09.png and unless I am missing 
>>>>> something, some of these "look" significant whereas some don't.
>>>>>     
>>>>
>>>> The pairs plot will certainly show you funds that closely track the 
>>>> index.  A quick check of cor() (or the Pearson correlation 
>>>> coefficient) and CAPM.alpha() will do the same.  A pairs plot (and 
>>>> to a lesser extent correlation) won't show you anything about 
>>>> systematic out-performance or under-performance, while alpha is a 
>>>> good indicator if the benchmark you choose is indicative of the 
>>>> investment universe of the fund.  Another good indicator is 
>>>> Sortino's Upside Potential Ratio, especially if you choose the 
>>>> benchmark index standard deviation as your MAR.
>>>>
>>>> CAPM alpha will not be a good indicator if you choose an index that 
>>>> is different from the investment style of the fund.  For example, 
>>>> using a SP200 index with a fixed income fund wouldn't make any sense.
>>>>
>>>> Cheers,
>>>>
>>>>   -Brian
>>>>   
>>>
>>>
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>>>
>>>  
>>>
>
>
>