Shi Yuan Chen '08 Posted by CN Chen in Economics Honors Thesis on Sunday, September 9. 2007
I am interested in doing a research topic in finance. The current topic I am exploring is Adaptive Markets Hypothesis. The idea that focusing on how markets evolve over time appeals to me more so than assuming that humans are rational and that information would be distributed freely (Efficient Markets Hypothesis). I learned in my institutional economics course that institutions tend to be path-dependent, meaning that their past states influence what kind of equilibrium they are able to reach. Financial institutions are no different, and therefore one must look at the changes over time to find what investment strategies would be profitable. Here are a few interesting conclusions from the Andrew Lo paper on AMH:
Another interesting puzzle was the Grossman-Stiglitz Paradox, which states:
So that basically covers what I am preparing to write about this year. Some other potential topics I might go with include liquidity crisis or abnormal hedge fund returns. I strongly encourage you to leave some kind of comment or feedback. Thanks in advance.
A few books on the top of my reading list:
Investing: The Last Liberal Art by Robert Hagstrom
Advances in Behavioral Finance by Richard H. Thaler
Market Wizards by Jack D. Schwager
Monday, March 3. 2008
Meeting with Rivkin Posted by CN Chen in Economics Honors Thesis at 16:35
We talked very briefly today. Prof. Rivkin thought the ideas behind Andrew Lo's Adaptive Markets Hypothesis were very interesting, but he was not convinced it was a better alternative over EMH. For next week, I need to have the following sections of my thesis written:
Monday, December 10. 2007
Meeting with Woglom Posted by CN Chen in Economics Honors Thesis at 14:43
In our meeting today, we briefly talked about the thesis presentations last week. I plan to e-mail Professor Ishii and respond to his concern about the long-term differenes between EMH and AMH (my response is basially that there aren't any, but the issue I am trying to address really is in the transition phase, in which the two views do differ). Prof. Nicholson's concern about the significance of the filter trading rules is more of a direct problem that I need to address.
What I will accomplish over Interterm:
Wednesday, December 5. 2007
Thesis Presentation Posted by CN Chen in Economics Honors Thesis at 12:20
I made my thesis proposal presentation today in front of the Amherst College Economics department. I was faced with a question about the long-term differences between Adaptive and Efficient Markets Hypothesis and how my findings would tie into my original thesis question. Another question is what criteria I will use to qualify the inefficiencies of markets from using the filter trading rule. I will have to examine these issues in closer detail. Also, I will post up my presentation slides when I get a chance.
Monday, November 26. 2007
Meeting with Woglom Posted by CN Chen in Economics Honors Thesis at 19:12
In our meeting today, we discussed autocorrelation testing. I had started redoing the Stata project using another built-in ACF test. Ironically, the autocorrelation test results were excessively conclusive about the evidence of autocorrelation in our data. Since this looks too good to be true, will spend this week figuring out exactly what I did wrong to get such impossibly good results.
Also, I was told that there's a prominent Amherst alum working at a well known asset management company that would be interested in talking to me about my thesis idea. I take this opportunity to welcome anyone reading this to contact me even if it is nothing more than just letting me know you are interested in reading about this topic. Or that your heart skips a beat every time you see me publish a new post. Feel free to leave comments or send me an e-mail. I'm tired of seeing 4-5 new spambot trackbacks on my blog everyday and not much else. There is nothing more valuable to me than hearing your opinions. Thank you.
Monday, November 26. 2007
Thesis Proposal 3rd Draft Posted by CN Chen in Economics Honors Thesis at 10:00
Monday, November 5. 2007
Meeting with Woglom Posted by CN Chen in Economics Honors Thesis at 09:33
I met with Prof. Woglom today and showed him the Excel file I worked on over this weekend. I will attach the file here when I get a chance.
Trading rules are as follows:
Tuesday, October 23. 2007
Below is a list of stocks that are traded on three exchanges: the New York Stock Exchange (NYSE), the Hong Kong Stock Exchange (HKEX), and the Shanghai Stock Exchange (SSE). As you will notice, there is a premium ranging from 12% to 388% for stocks listed in Shanghai compared to those listed in the US for the same company. In a market where there are no restrictions on supply and demand and no easy arbitrage opportunities, there probably would still be a difference in the pricing of a stock that is listed on two different exchanges. It is an issue I'd be interested in looking into. According to this article, from the 45 Chinese companies dual-listed in both Hong Kong and the mainland, the H-shares are 34% cheaper. Recently, there was a rumor from the China Securities Regulatory Commission (CSRC) that suggested the PRC was considering allowing swaps between the A-shares listed on the mainland and the H-shares listed in Hong Kong. Although these rumors were later dismissed, it certainly raises questions such as how efficient the SSE and HKEX currently are and also what the equilibrium prices would be if these swaps were allowed.
Sunday, October 21. 2007
Stock Market Efficiency Papers Posted by CN Chen in Economics Honors Thesis at 17:37
I found the following few papers to be of interest:
Also, I read this interesting article regarding the "Shanghai Premium", a disturbing fact that stocks listed on both the Chinese stock market and either the Hong Kong or US stock market (or all three) exhibit a heavy premium (in the neighborhood of 50-100%) for the Chinese stocks, even though the fundamental value of these stocks are the same. It's really more of a supply/demand issue since Chinese investors aren't yet allowed to participate in foreign stock exchanges or sell short Chinese stocks.
Thursday, October 18. 2007
Thesis Proposal 2nd Draft Posted by CN Chen in Economics Honors Thesis at 10:02
Click below to read the second draft of my thesis proposal. There's not many significant changes; I just expanded some of the sections to reflect the recent work (see Lit Review) that I have done.
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