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Beyond the Random Walk: A Guide to Stock Market Anomalies and Low Risk Investing

by Vijay Singal  · 15 Jun 2004  · 369pp  · 128,349 words

anomalies that do not have a reasonable explanation, especially if it appears that the mispricing has occurred just by chance. SELECTION BIAS Another bias that may creep into the discovery of mispricings is selection bias, that is, the sample may be biased in favor of finding the desired result. Assume you want to measure

and the result is falsely attributed to the entire American population, including rural and less urban areas. In the case of stock market studies, a selection bias can creep in when the results arise from a certain part of the sample but seem to be representative of the entire market. For example

skepticism, as spurious mispricings can surface for a variety of reasons, such as errors in defining normal return, data mining, survivorship bias, small sample bias, selection bias, nonsynchronous trading, and misestimation of risk. • Though anomalies should disappear in an efficient market, they may persist because they are not well understood, arbitrage is

Beyond the Random Walk Chan, Louis K. C., Narasimhan Jegadeesh, and Josef Lakonishok. 1995. Evaluating the Performance of Value Versus Glamour Stocks: The Impact of Selection Bias. Journal of Financial Economics 38(3), 269–96. Chen, Honghui, Greg Noronha, and Vijay Singal. 2004. The Price Response to S&P 500 Index Additions

and, 135, 142, 149 Internet resources, 160 merger arbitrage and, 197 Ownership Reporting System, 138 reporting requirements, 134, 136, 146–47, 149 345 346 Index selection bias, 12 self-attribution, 286 Seyhun, Nejat, 147 share repurchases, 136, 309–10, 317n4 Sharpe, William, 8 Sharpe ratios forward rate bias strategies, 276, 279 in

Statistics in a Nutshell

by Sarah Boslaugh  · 10 Nov 2012

sample is biased, meaning it is not representative of the study population, conclusions drawn from the study sample might not apply to the study population. Selection bias exists if some potential subjects are more likely than others to be selected for the study sample. This term is usually reserved for bias that

) of employees before and after the lecture series and finds that the series has been effective in increasing healthy behaviors and decreasing unhealthy behaviors. Solution Selection bias and nonresponse bias, both of which affect the quality of the sample analyzed. The reported average annual salary is probably an overestimate of the true

and women who shop at the mall, let alone who live in the area? Quota sampling can also be subject to a particular type of selection bias, which is also a risk in convenience sampling. The data collector might approach people who seem most like himself (for instance in age) or who

better able to recall events. Reliability How consistent or repeatable measurements are over time. Retrospective study A study of events that have already taken place. Selection bias Bias due to the way a sample is selected. Sensitivity In medicine and epidemiology, the probability that a person who has a disease will test

. Variance A measure of the variability of a range of numbers, calculated as the mean squared difference from the mean. Volunteer bias A type of selection bias resulting from collecting data from a sample of volunteers. Index A note on the digital index A link in an index entry is displayed as

Terms predictions of presidential elections and sample, Exercises publication bias, Quick Checklist recall, Information Bias recall bias, Glossary of Statistical Terms retrospective adjustment, Retrospective Adjustment selection, Bias in Sample Selection and Retention, Glossary of Statistical Terms social desirability, Information Bias, Glossary of Statistical Terms types of, Measurement Bias–Information Bias volunteer, Bias

in Research Design–The Power of Coincidence, Descriptive Statistics–Extrapolation and Trends writing, Writing the Article–Writing the Article secondary data, Basic Vocabulary–Basic Vocabulary selection bias, Bias in Sample Selection and Retention, Glossary of Statistical Terms semantic differential scale, The Likert and Semantic Differential Scales–The Likert and Semantic Differential Scales

The Case Against Education: Why the Education System Is a Waste of Time and Money

by Bryan Caplan  · 16 Jan 2018  · 636pp  · 140,406 words

. Alon and Tienda 2005 and Titus 2004 present typical results. 88. Heil et al. 2014 reports that, after correcting for many preexisting student traits and selection bias, college selectivity at least does not raise completion probability. 89. My estimates also assume college quality has the same proportional effect on unemployment; i.e

18 (3): 253–92. Frank, Robert. 1999. Luxury Fever: Money and Happiness in An Age of Excess. Princeton, NJ: Princeton University Press. Frazis, Harley. 1993. “Selection Bias and the Degree Effect.” Journal of Human Resources 28 (3): 538–54. ———. 2002. “Human Capital, Signaling, and the Pattern of Returns to Education.” Oxford Economic

Enrollment at Public Colleges and Universities.” Educational Evaluation and Policy Analysis 33 (4): 435–57. Hendricks, Lutz, and Oksana Leukhina. 2014. “The Return to College: Selection Bias and Dropout Risk.” CESifo Working Paper Series 4733. Last modified April 5. http://ssrn.com/abstract=2432905. Henrichson, Christian, and Ruth Delaney. 2012. “The Price

Expected Returns: An Investor's Guide to Harvesting Market Rewards

by Antti Ilmanen  · 4 Apr 2011  · 1,088pp  · 228,743 words

specific and/or has no investment value for the future. Here is some color on each explanation. Data mining (also called data snooping, overfitting, or selection bias) Any interesting empirical regularities could be spurious (which does not mean that they all are). When thousands of academics and practitioners study the same historical

0.5% to 0.8% lower than the U.S. premium for 1900–2009—consistent with mild selection bias. The authors argue that use of their world premium captures the bulk of any survivorship or selection bias given that the 19 countries in their database may have accounted for 90% of world equity market

successful ones will eventually be reported while poorer performers will not. Empirically, it is clear that average returns are lower if backfill filters are used. • Selection bias. Funds mainly report for marketing reasons. They may opt out not only because of poor performance but also because an established fund is closed and

”. Investable indices offered lower costs, better transparency, and better liquidity than non-index investments. However, top HFs had little incentive to participate, leading to adverse selection bias, and investable HF indices have consistently underperformed broader HF indices. After a brief detour I will return to other HF alternatives. Alphas, betas, alternative betas

studies, I exclude currencies that were fixed or pegged to another currency, along with currencies that have or had significant capital controls. Due to this selection bias, I might overstate returns by excluding hyperinflated and/or defaulted markets that fell out of my universe. In practice, this has not been a major

episodes why strategies work cyclical effects credit spreads growth seasonal regularities see also business cycles D/P see dividend yield data mining see also overfitting; selection bias data sources of time series data series construction day-of-the-week effect DDM see dividend discount model debt supercycle default correlations, CDOs default rates

also at-the-money options; calls; puts out-of-the-money (OTM) options seasonal regularities tail risks volatility selling overconfidence overcrowding overfittingsee also data mining; selection bias overoptimism overreaction P/B ratio see price-to-book ratio P/E ratio see price/earnings ratio pairwise carry trading PE see private equity funds

—1987 asset richening disinflation financialization future trends Great Moderation leveraging market vs. state nextyears recession 2008—2009 reversible sustainable ten trends securities see also TIPS selection bias see also data mining; overfitting self-attribution self-deception selling volatility sentiment indicators share buybacks Sharpe ratios (SRs) active investing BAB balancing stock—bond portfolios

Science Fictions: How Fraud, Bias, Negligence, and Hype Undermine the Search for Truth

by Stuart Ritchie  · 20 Jul 2020

’s a wicked problem, and more pervasive in studies than we’d like to think. See also Marcus R. Munafò et al., ‘Collider Scope: When Selection Bias Can Substantially Influence Observed Associations’, International Journal of Epidemiology 47, no. 1 (27 Sept. 2017): pp. 226–35; https://doi.org/10.1093/ije/dyx206

Data Science for Business: What You Need to Know About Data Mining and Data-Analytic Thinking

by Foster Provost and Tom Fawcett  · 30 Jun 2013  · 660pp  · 141,595 words

be greater than zero, so: That is, the expected donation (lefthand side) should be greater than the solicitation cost (righthand side). A Brief Digression on Selection Bias This example brings up an important data science issue whose detailed treatment is beyond the scope of this book, but nevertheless is important to discuss

who happened to have been selected in the past be a good sample from which to model the general population? This is an example of selection bias—the data were not selected randomly from the population to which you intend to apply the model, but instead were biased in some way (by

to donate in some past campaign will be biased towards those who donate less. Fortunately, there are data science techniques to help modelers deal with selection bias. They are beyond the scope of this book, but the interested reader might start by reading (Zadrozny & Elkan, 2001; Zadrozny, 2004) for an illustration of

dealing with selection bias in this exact donation solicitation case study. Our Churn Example Revisited with Even More Sophistication Let’s return to our example of churn and apply

with the offer. Hopefully this would be a representative sample of the customer base to which the model was applied (see the above discussion of selection bias). Developing our Data Understanding, let’s think more deeply about each of these in turn. How can we obtain a sample of such customers who

with a similar, but not identical, offer in the past. If this offer had been made to customers in a similar situation (and recall the selection bias concern discussed above), it may be useful to build a model using the proxy label. [64] The expected value decomposition highlights yet another option. What

implementations. Morgan Kaufmann, San Francisco. Software available from http://www.cs.waikato.ac.nz/~ml/weka/. Zadrozny, B. (2004). Learning and evaluating classifiers under sample selection bias. In Proceedings of the Twenty-first International Conference on Machine Learning, pp. 903-910. Zadrozny, B., & Elkan, C. (2001). Learning and making decisions when costs

–The Expected Value Framework: Decomposing the Business Problem and Recomposing the Solution Pieces selection bias, A Brief Digression on Selection Bias–A Brief Digression on Selection Bias targeting best prospects with, Targeting the Best Prospects for a Charity Mailing–A Brief Digression on Selection Bias analytic skills, software skills vs., Implications for Managing the Data Science Team analytic

to Data Mining Tasks Cray Computer Corporation, The Data credit-card transactions, Data Understanding, Profiling: Finding Typical Behavior creditworthiness model, as example of selection bias, A Brief Digression on Selection Bias CRISP cycle, Implications for Managing the Data Science Team approaches and, Implications for Managing the Data Science Team strategy and, Implications for Managing

-neighbor reasoning, Dimensionality and domain knowledge–Dimensionality and domain knowledge directed marketing example, Targeting the Best Prospects for a Charity Mailing–A Brief Digression on Selection Bias discoveries, Data Science, Engineering, and Data-Driven Decision Making discrete (binary) classifiers, ROC Graphs and Curves discrete classifiers, ROC Graphs and Curves discretized numeric variables

Viral Marketing Example detecting credit-card fraud, Profiling: Finding Typical Behavior directed marketing, Targeting the Best Prospects for a Charity Mailing–A Brief Digression on Selection Bias evaluating proposals, Scenario and Proposal–Flaws in the GGC Proposal evidence lift, Example: Evidence Lifts from Facebook “Likes”–Example: Evidence Lifts from Facebook “Likes” eWatch

Predictive Modeling: From Correlation to Supervised Segmentation informative variables, Supervised Segmentation variables, Introduction to Predictive Modeling: From Correlation to Supervised Segmentation selection bias, A Brief Digression on Selection Bias–A Brief Digression on Selection Bias semantic similarity, syntactic vs., The news story clusters separating classes, Example: Overfitting Linear Functions sequential backward elimination, A General Method for

Europe and, Privacy, Ethics, and Mining Data About Individuals targeting best prospects example, Targeting the Best Prospects for a Charity Mailing–A Brief Digression on Selection Bias tasks/techniques, Data Science, Engineering, and Data-Driven Decision Making, Other Data Science Tasks and Techniques–Summary associations, Co-occurrences and Associations: Finding Items That

Commodity Trading Advisors: Risk, Performance Analysis, and Selection

by Greg N. Gregoriou, Vassilios Karavas, François-Serge Lhabitant and Fabrice Douglas Rouah  · 23 Sep 2004

an overall picture of CTA, as it is more representative of the performance of trading advisors as a whole and cannot be criticized as having selection bias. The sample portfolio is made up of CTA, Canadian, U.S., and international equities as well as domestic bonds. Canadian equities are represented by the

Advances in Financial Machine Learning

by Marcos Lopez de Prado  · 2 Feb 2018  · 571pp  · 105,054 words

-sample. 1.3.2.6 Overfitting Problem: Standard cross-validation methods fail in finance. Most discoveries in finance are false, due to multiple testing and selection bias. Solution: Whatever you do, always ask yourself in what way you may be overfitting. Be skeptical about your own work, and constantly challenge yourself to

for CV's failure is that the testing set is used multiple times in the process of developing a model, leading to multiple testing and selection bias. We will revisit this second cause of failure in Chapters 11–13. For the time being, let us concern ourselves exclusively with the first cause

, and hide the rest, your audience will not be able to deduce that these results are false positives, a statistical fluke. This phenomenon is called “selection bias.” Can you imagine one procedure to prevent this? What if we split the dataset in three sets: training, validation, and testing? The validation set is

run only on the one configuration chosen in the validation phase. In what case does this procedure still fail? What is the key to avoiding selection bias? Bibliography Bharat Rao, R., G. Fung, and R. Rosales (2008): “On the dangers of cross-validation: An experimental evaluation.” White paper, IKM CKS Siemens Medical

is like drinking and driving. Do not research under the influence of a backtest. Most backtests published in journals are flawed, as the result of selection bias on multiple tests (Bailey, Borwein, López de Prado, and Zhu [2014]; Harvey et al. [2016]). A full book could be written listing all the different

sins of Luo et al. [2014] (there are more, but who's counting?). Professionals may produce flawless backtests, and will still fall for multiple testing, selection bias, or backtest overfitting (Bailey and López de Prado [2014b]). 11.4 Backtesting Is Not a Research Tool Chapter 8 discussed substitution effects, joint effects, masking

a false discovery will drop substantially, but still they will not be zero. 11.5 A Few General Recommendations Backtest overfitting can be defined as selection bias on multiple backtests. Backtest overfitting takes place when a strategy is developed to perform well on a backtest, by monetizing random historical patterns. Because those

unlikely to occur again in the future, the strategy so developed will fail. Every backtested strategy is overfit to some extent as a result of “selection bias”: The only backtests that most people share are those that portray supposedly winning investment strategies. How to address backtest overfitting is arguably the most fundamental

. 15, No. 2 (Winter). Available at https://ssrn.com/abstract=1821643. Bailey, D. and M. López de Prado (2014b): “The deflated Sharpe ratio: Correcting for selection bias, backtest overfitting and non-normality.” Journal of Portfolio Management, Vol. 40, No. 5, pp. 94–107. Available at https://ssrn.com/abstract=2460551. Harvey, C

CPCV's variance will be, and in the limit CPCV will report the true Sharpe ratio E[yi] with zero variance, . There will not be selection bias, because the strategy selected out of i = 1, …, I will be the one with the highest true Sharpe ratio. Of course, we know that zero

ahead and present only the result with the higher Sharpe ratio, arguing that a strategy with a shorter warm-up is more realistic. Is this selection bias? Your strategy achieves a Sharpe ratio of 1.5 on a WF backtest, but a Sharpe ratio of 0.7 on a CV backtest. You

higher Sharpe ratio, arguing that the WF backtest is historically accurate, while the CV backtest is a scenario simulation, or an inferential exercise. Is this selection bias? Your strategy produces 100,000 forecasts over time. You would like to derive the CPCV distribution of Sharpe ratios by generating 1,000 paths. What

. 15, No. 2 (Winter). Available at https://ssrn.com/abstract=1821643. Bailey, D. and M. López de Prado (2014): “The deflated Sharpe ratio: Correcting for selection bias, backtest overfitting and non-normality.” Journal of Portfolio Management, Vol. 40, No. 5, pp. 94–107. Available at https://ssrn.com/abstract=2460551. Bailey, D

on absolute or relative returns. Deflated Sharpe ratio: DSR corrects SR for inflationary effects caused by non-Normal returns, track record length, and multiple testing/selection bias. It should exceed 0.95, for the standard significance level of 5%. It can be computed on absolute or relative returns. 14.8 Classification Scores

frontier.” Journal of Risk, Vol. 15, No. 2, pp. 3–44. Bailey, D. and M. López de Prado (2014): “The deflated Sharpe ratio: Correcting for selection bias, backtest overfitting and non-normality.” Journal of Portfolio Management, Vol. 40, No. 5. Available at https://ssrn.com/abstract=2460551. Barra (1998): Risk Model Handbook

implied by Figure 13.5, for a weekly betting frequency? References Bailey, D. and M. López de Prado (2014): “The deflated Sharpe ratio: Correcting for selection bias, backtest overfitting and non-normality.” Journal of Portfolio Management, Vol. 40, No. 5. Available at https://ssrn.com/abstract=2460551. Bailey, D. and M. López

us to pick a particular historical dataset where HRP outperforms CLA and IVP (see Bailey and López de Prado [2014], and recall our discussion of selection bias in Chapter 11). Instead, in this section we follow the backtesting paradigm explained in Chapter 13, and evaluate via Monte Carlo the performance out-of

. 5, pp. 458–471. Available at http://ssrn.com/abstract=2308659. Bailey, D. and M. López de Prado (2014): “The deflated Sharpe ratio: Correcting for selection bias, backtest overfitting and non-normality.” Journal of Portfolio Management, Vol. 40, No. 5, pp. 94–107. Black, F. and R. Litterman (1992): “Global portfolio optimization

LTAP as the baseline, the average reductions are only 0.164 kWh for both years. Part of the difference may be due to the self-selection bias in treatment groups, especially the active group, where the households have to explicitly opt-in to participate in the trial. It is likely that the

are well-suited to take advantage of the proposed new pricing structure. We believe that the LTAP baseline is a way to address the self-selection bias and plan to conduct additional studies to further verify this. Figure 22.6 Gradient tree boosting (GBT) appears to follow recent usage too closely and

tuning and need for skepticism optimal trading rule (OTR) framework for probability of. See Probability of backtest overfitting (PBO) random forest (RF) method to reduce selection bias and support vector machines (SVMs) and trading rules and walk-forward (WF) method and Backtest statistics classification measurements in drawdown (DD) and time under water

redundancy and bagging classifiers in random forest (RF) overfitting and support vector machine (SVM) implementation in synthetic dataset generation in walk-forward timefolds method in Selection bias Sequential bootstraps description of implementation of leakage reduction using Monte Carlo experiments evaluating numerical example of Shannon, Claude Sharpe ratio (SR) in efficiency measurements annualized

Super Thinking: The Big Book of Mental Models

by Gabriel Weinberg and Lauren McCann  · 17 Jun 2019

nonsmoking pregnant women start smoking. The smokers in the study would therefore be those who selected to continue smoking, which can introduce a bias called selection bias. With selection bias, there is no guarantee that the study has isolated smoking to be the only difference between these groups. So if there is a difference

who choose to continue smoking during their pregnancy against the advice of doctors may similarly make other medically questionable choices, which could drive adverse outcomes. Selection bias can also occur when a sample is selected that is not representative of the broader population of interest, as with online reviews. If the group

must be really careful when drawing conclusions based on nonrandom experiments. The Dilbert cartoon above pokes fun at the selection bias inherent in a lot of the studies reported in the news. A similar selection bias occurs with parents and school choice for their kids. Parents understandably want to give their kids a leg

or because the students are better prepared due to their parents’ financial means and interest in education? Selection bias likely explains some significant portion of these schools’ better test scores and college admissions. Another type of selection bias, common to surveys, is nonresponse bias, which occurs when a subset of people don’t participate

as one-to-ten ratings Respondents reporting things that reflect well on themselves It’s worth trying to account for all of these subtle biases (selection bias, nonresponse bias, response bias, survivorship bias), because after you do so, you can be even more sure of your conclusions. BE WARY OF THE “LAW

can make you overlook possible suboptimal choices in a study’s design (e.g., sample size) or biases that could have crept in (e.g., selection bias). WILL IT REPLICATE? By now you should know that some experimental results are just flukes. In order to be sure a study result isn’t

them. There are also many other reasons a study might not be replicable, including the various biases we’ve discussed in previous sections (e.g., selection bias, survivorship bias, etc.), which could have crept into the results. Another reason is that, by chance, the original study might have showcased a seemingly impressive

within two. Any isolated experiment can result in a false positive or a false negative and can also be biased by myriad factors, most commonly selection bias, response bias, and survivorship bias. Replication increases confidence in results, so start by looking for a systematic review and/or meta-analysis when researching an

, 289, 292 education and schools, 224–25, 241, 296 expectations and, 267–68 mindsets and, 267 school ranking, 137 school start times, 110, 111, 130 selection bias and, 140 textbooks in, 262 see also college effective altruism, 80 egalitarian versus hierarchical, in organizational culture, 274 80/20 arrangements, 80–81, 83 Einstein

thermodynamics, 124 secrets, 288–90, 292 Securities and Exchange Commission, U.S., 228 security, false sense of, 44 security services, 229 selection, adverse, 46–47 selection bias, 139–40, 143, 170 self-control, 87 self-fulfilling prophecies, 267 self-serving bias, 21, 272 Seligman, Martin, 22 Semmelweis, Ignaz, 25–26 Semmelweis reflex

Machine Learning Design Patterns: Solutions to Common Challenges in Data Preparation, Model Building, and MLOps

by Valliappa Lakshmanan, Sara Robinson and Michael Munn  · 31 Oct 2020

of your model, and the chosen baseline. In this section, we’ll discuss some limitations of explainability, along with some alternatives to feature attributions. Data selection bias It’s often said that machine learning is “garbage in, garbage out.” In other words, a model is only as good as the data used

representation of their training data. If we don’t catch data imbalances before training a model, explainability methods like feature attributions can help bring data selection bias to light. As an example, say we’re building a model to predict the type of boat present in an image. Let’s say it

beam search algorithm, Problem Representation Design Patterns BERT, Context language models-Context language models, Embeddings of words versus sentences, Choosing a batch size biasdata, Data selection bias, Problem, Before training-Allow and disallow lists(see also data collection bias, data distribution bias, data representation bias, experimenter bias, implicit bias, problematic bias, proxy

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Bad Data Handbook

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Antifragile: Things That Gain From Disorder

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Trading and Exchanges: Market Microstructure for Practitioners

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The Alignment Problem: Machine Learning and Human Values

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Golden Holocaust: Origins of the Cigarette Catastrophe and the Case for Abolition

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