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Stephen Rush wrote a new blog post titled Timing csv File Reading in R and Python
I am currently working with trade data organized in large csv files. I took this as an opportunity to learn the Pandas package in Python mostly for the HDF5 integration. As a sanity check, I decided to time three methods: read.csv in R base, fread in the data.table package in R, and read.csv in the Pandas package in Python. Let me first say that I am not a programmer. This test is not a definitive benchmark of the three methods. It is a benchmark of the “out-of-the-box” functionality available to the non-programmer trying to use code to get shit done. I used time.time() in Python...
2125 days ago
Stephen Rush wrote a new blog post titled Two-way Sorting in R
One of the popular ways to motivate a two dimensional model is to double sort your data based on quantiles. This makes empirical asset pricing models exceedingly easy to understand. If I had already defined the breakpoints of the sort, I could just use a function like “plyr” to apply a function like “mean” to the data subsets. For my application, I want to create five portfolios based on one characteristic and then form five portfolio within each of the first five based on another characteristic. To generalize from a 5×5 sort, I include the parameter q to allow...
2380 days ago
Stephen Rush wrote a new blog post titled Managerial Game Theory
One of the first models covered in game theory is the Prisoner’s Dilemma. I’m sure you’ve heard of it or at least recognize it from episodes of Law and Order. Let’s look at the simple model with 2 individual players so we can eliminate mixed strategy equilibria and focus strictly on pure strategies. The two strategies for each player are “productive” and “exploitive”. The payoffs for the two players can be summarized on the usual grid. Employee Productive Exploitive Manager Productive 1,1 0,2 Exploitive 2,0 0,0 One possible economic...
2857 days ago
Stephen Rush wrote a new blog post titled The Decreasing Marginal Utility of Donuts
This morning I ran through the Dunkin Donuts to pick up two donuts for me and two donuts for my wife. Four donuts cost $3.85 while 6 donuts cost a little over $4.00. The cashier tried to convince me that buying 6 donuts would be cheaper. Understandably, the cashier would not know that I was ordering for only two people or that we prefer not to stuff ourselves with more than two donuts each. Still, I feel like the cashier never quite believes that I understand the cost per donut is lower with an order of 6 versus 4 but that it is entirely rational to base decisions on total cost rather than...
2933 days ago
Stephen Rush wrote a new blog post titled Benchmark Investing Stock Selection
A particular insurance company’s investment department measures stock performance against the S&P500 index on an annual basis. The portfolio is long only with no derivatives. The portfolio manager eases into new positions and takes smaller positions outside of the index. The department operates on a monthly trading schedule where all trades for the next month are set within the last week of the current month. Regardless of how much the portfolio outperforms its benchmark, full bonuses are paid based on the trailing three years of performance. This compensation plan is ridiculous for...
2966 days ago
Stephen Rush wrote a new blog post titled Graphing Fed Data
The quantmod package is great for grabbing various financial data series from online sources like Google, Yahoo, Oanda, and the Federal Reserve. It also has some nifty technical charts that look very nice but are rather difficult to modify. One such problem is charting multiple data series. In quantmod, you could do this: library(quantmod) variables=c(“INDPRO”,”TCU”); names=c(“Industrial Production”,”Capacity Utilization SA”) getSymbols(variables,src=”FRED”) recent=120 #Set number of most recent observations...
2966 days ago
Stephen Rush wrote a new blog post titled Value Creation
I hear a lot of opinions on how economic value is created. Some of these opinions are supported by secondhand anecdotal evidence and most of them are used to support various political or social positions. Some of the most absurd theories on value creation even come from wealthy and/or successful people so someone without a business education may be forgiven for believing that this is a philosophical question that can only be answered through a belief in some set of principles. I would like to articulate why there is an objective reality to value creation. It has very little bearing on any...
2966 days ago
Stephen Rush wrote a new blog post titled Correlation Graph
Earlier this week, I saw a message in my Twitter feed talking about an unusual correlation pattern between the S&P 500 and the Dow. Unfortunately, the graph produced by the Greg Mankiw recommended site AssetCorrelation.com was grossly inaccurate showing periods of zero correlation between the indices. A few lines of code using the Quantmod package in R can easily replicate the functionality of the site and a prudent analyst can simply load a more reliable data source before arriving at any conclusions. This script takes data from Yahoo finance but you can easily use Google finance or load...
2966 days ago
Stephen Rush wrote a new blog post titled The Effects of Venture Capital Strategy
Introduction Highland Capital and Tallwood Venture Capital represent two strategies of venture capital investing. Highland represents the traditional diversified portfolio strategy where many unrelated investments are made and little operational support is provided by the investor. Tallwood represents the focused portfolio strategy where fewer investments are made in a specific industry and investors are able to provide a greater amount of time and operational support to their firms. Neither of these firms is absolute in their strategic focus. Highland provides some support to some of its...
2966 days ago
Stephen Rush wrote a new blog post titled The Economist: Status Displays
The Economist recently reported on a study conducted by Rob Nelissen and Marijn Meijers from Tilburg University in the Netherlands on how brands change our personal interactions. Through a series of experiments, the researchers showed that a well-known designer brand alone confers a higher perceived status and wealth on the wearer that alters how others interact with him or her. The positive effect from the label allowed a subject to get more people to take a survey, solicit donations, obtain a job, and receive a higher salary. In a game where participants were asked to risk giving money to a...
2966 days ago
Stephen Rush wrote a new blog post titled Social Business Models
In operations management, co-production is the use of a business’ customers to assist in creating a good or service. Obvious examples are assembling Ikea furniture, self checkout, and using an ATM. Social media is also co-production. The value of Facebook, Twitter, or the rest is not the platform; it is the network and content that we create using the tools provided by the company. Unlike assembling furniture or replacing people with machines, the majority of social media’s value is created through co-production while in our other examples, co-production represents a small portion...
2966 days ago
Stephen Rush wrote a new blog post titled Beating the Market Part 2
In Part 1, I discussed some of the structural reasons why it is easy to beat the market that stem from the incompleteness of markets. The investment policy statement limits most market participants to specific assets and factors such as liquidity, bid-ask spreads, and risk management limit the remaining market participants from maintaining constant market efficiency. If we look at the largest market participants, they are typically long only institutional investors with relatively low portfolio churn rates. A good representative portfolio consists of the following five asset classes: U.S....
2966 days ago
Stephen Rush wrote a new blog post titled Beating the Market Part 1
In 1975, John Bogle started the first index mutual fund on the theory that active management does not produce consistently superior returns to justify the added expense. Is this argument consistent with the Efficient Market Hypothesis? I will argue that the idea of “passive management” is misleading due to the practical nature of implementation. There exist only varying degrees of active management with different costs, risks, and expected returns. While it is necessary to question what strategies are worth the cost, the question of active or passive management assumes that there...
2966 days ago
Stephen Rush wrote a new blog post titled Piano Music
I’m taking a brief break from everything this afternoon and finally getting around to recording some of the music I wrote when I was younger. This is part of a piece I envisioned as a psalm but never got around to writing the lyrics. More to come as I get around to learning the capabilities of my software and can record the rest of the piece.
2966 days ago