Whenever there’s some big event happening like the World Cup, Olympics, or a presidential election, I often see headlines about psychic animals: Sometimes the psychic animal seems to have a pretty impressive record. For example,
You said the year after, these funds underperformed the market. Was this significant? Can you outperform the market by shorting these funds?
Also, I've read several studies claiming that women-owned mutual funds (or maybe funds investing in women-owned businesses) beat the market year after year. I'm skeptical of this but have done the work it would take to disprove it - have you looked into this?
Hey Scott! If by “significant” you mean statistically significant, then I’m not sure. Based on eyeballing the distribution it looks significant (meaning mean < 1 for the underlying distribution with p < 0.05), but yeah maybe I'll try to do some kind of formal statistical test to confirm.
Good question about shorting. An important point here is that many of these funds are still making money, they’re just making a lower percent ROI than the market — only the ones with an actual negative return ratio are losing money. So you’d need to set up the short position in a way that would allow you to make money if the fund has a positive-but-worse-than-market return.
It seems like if people are betting on the funds to outperform the market there should be some way to take the other side of the bet, but I don’t know how to officially do this (maybe this is another potential use case for prediction markets). I tried to do it unofficially in the post by letting people know that I’m open to a Bryan Caplan-style bet if anyone wants to take me up on it lol
On the claim of women-managed mutually funds violating the Efficient Market Hypothesis and consistently beat the market year after year — I haven’t actually seen any studies claiming that, but if they exist then I’m definitely skeptical of the claim (sounds like an ideologically-motivated result — in general I’m skeptical of any result X if reporting the result NOT X will get the person in trouble). Probably the women-managed funds get the same distribution of returns as the men-managed funds, but I haven't done any actual analysis of it.
Btw thanks for recommending my blog! I’m a huge fan of your work and you’re actually my favorite science writer of all time, so it means a lot 🙂
Not financial advice or necessarily practical for you (but I think hedge funds do it this way), but what you'd do is buy a "long" trade on a passive fund, (basically agreeing to buy X units of the fund in T years time for $K), and a "short" trade on an active fund (agreeing to sell X units in T years time for $K). When the time comes the net return to you will be the difference between the funds, regardless of how much they've actually gone up/down
You said the year after, these funds underperformed the market. Was this significant? Can you outperform the market by shorting these funds?
Also, I've read several studies claiming that women-owned mutual funds (or maybe funds investing in women-owned businesses) beat the market year after year. I'm skeptical of this but have done the work it would take to disprove it - have you looked into this?
Hey Scott! If by “significant” you mean statistically significant, then I’m not sure. Based on eyeballing the distribution it looks significant (meaning mean < 1 for the underlying distribution with p < 0.05), but yeah maybe I'll try to do some kind of formal statistical test to confirm.
Good question about shorting. An important point here is that many of these funds are still making money, they’re just making a lower percent ROI than the market — only the ones with an actual negative return ratio are losing money. So you’d need to set up the short position in a way that would allow you to make money if the fund has a positive-but-worse-than-market return.
It seems like if people are betting on the funds to outperform the market there should be some way to take the other side of the bet, but I don’t know how to officially do this (maybe this is another potential use case for prediction markets). I tried to do it unofficially in the post by letting people know that I’m open to a Bryan Caplan-style bet if anyone wants to take me up on it lol
On the claim of women-managed mutually funds violating the Efficient Market Hypothesis and consistently beat the market year after year — I haven’t actually seen any studies claiming that, but if they exist then I’m definitely skeptical of the claim (sounds like an ideologically-motivated result — in general I’m skeptical of any result X if reporting the result NOT X will get the person in trouble). Probably the women-managed funds get the same distribution of returns as the men-managed funds, but I haven't done any actual analysis of it.
Btw thanks for recommending my blog! I’m a huge fan of your work and you’re actually my favorite science writer of all time, so it means a lot 🙂
Not financial advice or necessarily practical for you (but I think hedge funds do it this way), but what you'd do is buy a "long" trade on a passive fund, (basically agreeing to buy X units of the fund in T years time for $K), and a "short" trade on an active fund (agreeing to sell X units in T years time for $K). When the time comes the net return to you will be the difference between the funds, regardless of how much they've actually gone up/down