stevo
Duc
Arbitrage opportunities, as you have mentioned before, don't come up all that often. Do I assume that these opportunities form a minor part of the strategies that you use?
No they don't.
I'll find five, six opportunities each day, but I will only get executed on average one deal per month. With enough leverage, the returns are well worth having for zero risk.
You keep mentioning expectancy and I am not sure why - it's just another calculation. What measures would you use to determine if a system has a reasonable chance of working going forward? How did you determine that arbitrage was a goer?
I mention, or harp on about expectancy for the following reason.
The inputs to the calculation are derivatives.
Being derivatives, their adequacy is governed by the quality of their generation. ****e in ****e out. Therefore, if the statistical significance is non-existent, the expectancy calculation is worthless.
The major flaw with *monte carlo* is that the time period is too short.
If your time period is long enough, then, you should start to see statistical significance, and the derived calculations will have relevance.
I spoke to one systems tester, and he didn't even bother with monte carlo.
Yet the same calculations were used.
Monte Carlo analysis is useful to investigate the possible outcomes of the same system. A single backtest run doesn't really tell me much but a 1000 simulations start to tell me things. I also don't test on individual stocks only - I always portfolio test 100's of stocks.
Agreed.
Monte carlo is definitely a step in the right direction.
I know that both you and tech/a utilize it.
TT only went (I believe from 1996) and that to my mind is just barely scraping a pass mark, if we say a *business cycle* is 4yrs to 7yrs.
It does not cover *market cycles* which are much more variable.
1996 to today in the ASX also does not include a secular bear market.
This I believe is important information that needs consideration within the testing parametres, if you wish to achieve true statistical significance, which will then provide you with a true expectancy or PROBABILITY.
As I stated before if I have to do p-Values or t-tests to see the difference then the system is not worth trading. But an equity curves and quarterly returns bar chart gives me a hint of the future if I traded a system.
It will only give you a hint of the future if it is
statistically significant
If it is not, then you are defining a
trend
A trend is a direct prediction of the future, and must prove itself either correct, or incorrect, as it will either continue, or end. This is true because the paradigm that you are currently testing in is DETERMINISTIC.
markrmau
That is a rather limited view on arbitrage. Arbitrage is not limited to mispricing between securities.
Of course, but you wouldn't expect a thesis on arbitrage in the space of one post, any more than a tecchie could summarize TA in a single post.
Snake
I was talking about arbitrage not "an arbitrage".
Perhaps you could go beyond your definition and explain why it is used by entrepreneurs all the time. It is not limited to securities, and is certainly rendered inneffective once the window of opportunity has passed. Maybe a text book can be quoted or something.....
If you can find a quote directly attributable to myself, asserting,
entrepreneurs use it all the time then I shall do so.
Of course, that will never happen, as I never said any such thing.
I was illustrating a
statistically significant methodology something that obviously holds no interest for yourself.
In regards to its limitation to securities, you are correct, there are a number of arbitrage techniques. The opportunity lasts as long as the price inefficiency, how long is a piece of string?
bob
Go Snake,
I'm not the only one sick of this humdrum- jog on humbug, hope you had a good laugh !
Bob.
Even the peanut gallery are jumping in. Obviously ignorance is bliss, and using a hammer for a screw insertion carries the appeal of speed, and seemingly identical results.
jog on
d998