| Title | The Dangerous Mathematical Con of Hedge Funds and Financial Advisers | |
| Date | Monday November 23 2015, @10:14PM | |
| Author | cmn32480 | |
| Topic | ||
| from the time-to-check-the-addition dept. | ||
In meetings with clients, hedge fund representatives present flashy charts and speak equal parts oracle and mad scientist. And for technical analysts who market themselves as the most technical of analysts, the mathematical jargon—"stochastic oscillators," "Fibonacci ratios," "Elliot wave," "Golden ratio"—evinces a certain disarming beauty. "This mathematics is embedded in the structure of the universe," Cynthia Kase, who runs a firm that employs "wave analysis" to predict oil prices, told Bloomberg News in 2012. "It is the language of God."
Though much of this language is too gaudy to be embraced by sophisticated investors, there is a more subtle mathematical con that many, including editors at most of the top financial journals, overlook. The positive results that emerge from testing the performance of an investing algorithm on past market data, a process known as backtesting, can seem reliable and logical. And they sometimes are. But often, in practice, presentations of these results, though marketed as scientifically rigorous, conceal statistically insignificant methodologies.
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