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Revisiting Shrinkage: Covariance Matrix Estimation in the Modern Age
One of the great truisms in modelling is "garbage in, garbage out." In few places is that more important than in financial modelling.
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Fishing on Thin Ice
Society is marching towards artificial general intelligence (AGI), whether we like it or not. The latest milestone towards AGI has been the development
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Will Artificial Intelligence Ever Beat the Stock Market?
Society is marching towards artificial general intelligence (AGI), whether we like it or not. The latest milestone towards AGI has been the development of ‘actually useful’ AI chatbots, ChatGPT (Microsoft) and Bard (Google). While in some ways these chatbots may seem trivial, this development is a major milestone that signifies the beginning of an arm’s race that will act […]
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Breaking the Bank
One of the big questions on investors’ minds over the last few weeks is whether the dramatic rise in interest rates is finally starting to take its toll on the economy. The collapse of Silicon Valley Bank (SVB) set off contagion worries in the banking sector and has increased the risk of an economic recession. […]
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Policy Pivots & the Federal Reserve Reaction Function
Since the onset of the Great Financial Crisis (GFC) in 2008 – and maybe back to the Dot Com bust in 2000 – market participants have become accustomed to easy financial policy and a supportive Federal Reserve (Fed). As discussed in Inflation – Why So Much Focus?, “[s]uccessive Federal Reserve Chairs have now followed Mr. Greenspan, […]
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The Acorn Optimist
Financial markets are always changing. This is not a new idea, but rather an accepted truth about their very nature. Being the sum-total of human consensus, markets capture and distill a great deal of information about a given entity into a single number: the price. As time has progressed and technologies and economies have grown, […]
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The Uncertainty Portfolio
“The test of a first-rate intelligence is the ability to hold two opposing ideas in mind at the same time and still retain the ability to function. One should, for example, be able to see that things are hopeless yet be determined to make them otherwise.” – F. Scott Fitzgerald Readers of Viewpoint’s publications over […]
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Game Changer.
I’ve been writing for some time about how the constraints that the Federal Reserve (Fed) is operating under make it such that it’s likely they will overreact to inflation, thus causing a recession. Despite the gravity of the ‘R’ word, the recession that is likely to materialize should be mild given we’re coming off a […]
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Structural Alpha: Why the Diversification Premium Isn’t Going Anywhere
Factor investing has become commonplace in the world of investment management ever since Eugene Fama and Kenneth French published their three-factor asset pricing model three decades ago. Since then, a lot of dedicated work has gone into uncovering new factors and sources of excess return unexplained by the factors that came before them, launching a […]