Noise is unwanted sound. For investors it is those pieces of data, stories, or even price moves, which may seem like information but actually tell us nothing about the future returns of an asset. Trading on noise can be hazardous to your wealth.
In Market Corner we hope to identify examples of noise which may be prevalent in an era of exponentially growing data and obsession with the short term. Why? To try not to fall victim to noise in our own decision making. Because human beings love stories noise can be highly seductive. We must always be on our guard and looking for examples of noise is just one step towards doing this.
There are a couple of reasons why we don’t believe that forecasting short term events is a sustainable investment approach.
First, it is very difficult: how can one have a sustainable forecasting ‘edge’ over and above what is currently priced into the market on something like an election result?… Read the article
Each year at Jackson Hole policy makers and economists around the world meet to discuss the issues of the day. Attention on policy makers has intensified to extremes since the financial crisis and it is unsurprisingly Janet Yellen and Mario Draghi who grabbed the headlines from the… Read the article
Last month apparently represented the twentieth anniversary of the start of the Asian crisis, and five years since Draghi’s ‘whatever it takes’ speech. This week apparently marks the ten-year anniversary of the financial crisis.
These events make great ‘hooks’ for content in the press, blogs,… Read the article
From the Financial Times this month:
“The tranquillity of Wall Street’s ‘Fear Gauge’ continues to baffle investors, given the market uncertainty”
Financial commentators and journalists – who are just as prone to herding as investors themselves – have brought attention to the ‘volatility paradox,’ the apparent disconnect between… Read the article
Behavioural Finance Markets
Yesterday the UK Prime Minister Theresa May gave a speech at Lancaster House which outlined potential objectives for the country’s Brexit negotiations. In it, she presented a Brexit plan that suggested a more meaningful break with the European Union than many of the possible options.
So why did Sterling strengthen… Read the article
It seems apposite that Matteo Renzi’s term as Italian Prime minister should end in this way. For investors, this referendum was a surreal distraction. The population were voting on the nuance of domestic decision making, but Eurozone membership means that there is limited scope for those decisions to impact the… Read the article
Thirty years ago today, the rules governing the London Stock Exchange changed, ushering in the “big bang” in the UK. The move was in part a response to concerns that London risked losing its pre-eminence in the world of finance to cities like New York.
The effect of the big… Read the article
Humans like to think they know more about things than they really do. This is perhaps more true in finance than elsewhere, because the abundance of data lends itself to analysis, pseudo-science, and experts.
One of the data points that draws most attention is the US non-farm payrolls, which is… Read the article
Markets have recently experienced some heightened volatility, which at times has been explained by commentators as being due to the changing expectations around the outcome of the UK referendum. Last week, equity markets globally experienced losses, while ‘safe haven’ assets, such as G7 government bond markets, rallied. The biggest currency… Read the article
Behavioural Finance Markets
All over the UK and Europe fund managers are being asked for their views on Brexit. Many will answer: ‘we don’t forecast.’ The more ambitious might add: ‘markets don’t like uncertainty, so volatility might create opportunities.’
As human beings we find these same old clichés deeply unsatisfying; we want to… Read the article