MIS 4500 Lecture Notes - Survivorship Bias, Variance, Statistical Inference

• School: University of Manitoba
• Department: Management Info. Systems
• Course: MIS 4500
• Professor: Pourang Irani

Document Summary

Beta research: related to systematic risk and returns to systematic risk; development of capital market expectations. Alpha research: related to capturing excess risk-adjusted returns by a particular strategy. Efficient (reducing magnitude of forecast errors to a minimum) internally consistent. Limitations of economic data time lag of collection, processing and dissemination: changes in definitions and calculation methods (say cpi-u) re-basing indices. Ex post risk can be a biased measure of ex ante risk: ex post returns may reflect that didn"t materialize resulting in overstated estimates of ex ante returns. Biases in analysts" methods: data-mining bias: repeatedly drilling or searching dataset to find statistically significant pattern, time-period bias: research findings that are sensitive to selection of starting and/or ending dates, may bias out-of-time period analysis. Failure to account for conditioning info: analyst should condition forecasts on the state of economy to formulate most accurate expectations (say different betas in expansion economies and recession economies) Enlist an independent-minded person to argue against.