Publications by Pat
What the hell is a variance matrix?
When I first came to finance, I kept hearing about “risk models”. I wondered, “What the hell is a risk model?” Of course, I didn’t say this out loud — that would have given the game away. My wife has strict instructions that she is to be the only one to know that I’m an idiot. Finally enlightenment came: “Oh, you mean a varia...
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Physical economy v social economy
There’s a hole in the bucket of traditional economics. Homo socialus seems to be on the rise, and homo economicus is getting harder to find. Vulcanism has become evident in the R community over the last several days. One of the visible eruptions has been over money. This resulted in a blog post by Tal Galili Why R developers shouldn’t be ...
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A tale of two returns
It was the best of times, it was the worst of times. As you may have guessed, this is a mashup of a novel by Charles Dickens and an explanation of financial returns. The key plot element of A Tale of Two Cities is that there are two men, Charles Darnay and Sydney Carton, who look almost identical. They are different, but in some respects interc...
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American TV does cointegration
Fringe provides an excellent example of cointegration. This is a television show in which there are two adjacent universes. The universes are almost alike but not exactly. Now, everyone knows that history is chaotic. If a butterfly does an extra flap of its wings, then that difference spreads out to change subsequent events everywhere. Bu...
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Ideas for World Statistics Day
World Statistics Day is 2010 October 20. If you work with data (or you should), then you are a statistician and this is a day for you. Try the Monte Hall problem on your mother. Start reading Bad Science. I mean the book, but here’s the blog. Take a step towards breaking your spreadsheet addiction by starting to use R. Watch Hans Rosling�...
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The ARORA guessing game
The game ARORA (A random or real array) is a website that gives you two time series at a time. Your job is to guess which series is real market data and which is permuted data. It’s fun — try it. With some practice you will probably be able to guess which is which well above chance. I have a hypothesis or two about why. But before you re...
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R is a name you need to know
As if that is news to some of you. Forbes has a Mean Business blog post by Steve McNally titled “Names You Need to Know in 2011: R Data Analysis Software”. The post includes several links to why R is wonderful. It also includes a pretty — but seemingly useless — statistical graph. Correct me if I’m wrong. This is the Green Room in The...
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Were stock returns really better in 2007 than 2008?
We know that the S&P 500 was up a little in 2007 and down a lot in 2008. So on the surface the question seems really stupid. But randomness played a part. Let’s have a go at deciding how much of a part. Figure 1: Comparison of 2007 and 2008 for the S&P 500. Statistical bootstrap The bootstrap is an easy way to find the variability of a s...
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Yet another inferno
Many from the R world will know The R Inferno. Abstract: If you are using R and you think you’re in hell, this is a map for you. A newly minted inferno is The 9 circles of scientific hell. Most amusing to me is Circle 4: p-value fishing, the punishment of which is brilliant. As a bonus one of the comments gives a glossary of the meanings of som...
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Joy of Stats coming soon
The Joy of Stats really is a joy. It will be shown on BBC4, apparently scheduled for December 7. (That date comes from Hans Rosling on twitter, I haven’t found scheduling evidence at the BBC.) I saw its debut at the Royal Statistical Society on World Statistics Day. Here is a five minute excerpt: You can see more of Hans Rosling via Ideas...
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