tag:blogger.com,1999:blog-7366878066073177705.post3930823006565429520..comments2024-02-09T18:16:45.614+00:00Comments on The Psy-Fi Blog: Whither Forecasting? The Butterfly Stirs ...timarrhttp://www.blogger.com/profile/06254802085744425067noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-7366878066073177705.post-63976608466005462322012-06-10T10:26:16.909+01:002012-06-10T10:26:16.909+01:00I've definitely read that buy side paper, but ...<i>I've definitely read that buy side paper, but here's the difference. That paper is talking about stock recommendations, which are a fools game to begin with. "Stock Recommendations" are something the sell side does as a gimmick, it is a hold over from the brokerage days.</i><br /><br />The same researchers have looked at earnings forecasts, but the paper isn't freely available on the web: Buy-Side vs. Sell-Side Analysts' Earnings Forecasts. The abstract gives a flavor:<br /><br /><i>The tests show that the buy-side analysts made more optimistic and less accurate forecasts than their counterparts on the sell side. The performance differences appear to be partially explained by the buy-side firm's greater retention of poorly performing analysts and by differences in the performance benchmarks used to evaluate buy-side and sell-side analysts.</i><br /><br />But if there's any new research or evidence point me at it when it comes out and I'll write it up. All in favor of people using new technology to break up the old models.timarrhttps://www.blogger.com/profile/06254802085744425067noreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-74697136718269862702012-06-10T10:17:44.797+01:002012-06-10T10:17:44.797+01:00I basically do not believe that any regulators can...<i>I basically do not believe that any regulators can look into massive financial organisations and ensure they don't blow up -- at least not without a truly spectacular simplification of the financial system, that would take us back to the 19th Century, and have a big knock-on effect on trade.</i><br /><br />Well, here's one possible answer: <a href="http://www.psyfitec.com/2012/06/end-of-finance-as-we-know-it.html" rel="nofollow">The End of Finance, As We Know It"</a><br /><br />:)))timarrhttps://www.blogger.com/profile/06254802085744425067noreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-63205259112182749592012-06-09T15:11:40.723+01:002012-06-09T15:11:40.723+01:00Timarr,
I've definitely read that buy side pa...Timarr,<br /><br />I've definitely read that buy side paper, but here's the difference. That paper is talking about stock recommendations, which are a fools game to begin with. "Stock Recommendations" are something the sell side does as a gimmick, it is a hold over from the brokerage days. The buy side does not engage in this type of activity in any meaningful way. We don't recommend stocks buy/sell/hold, that's ridiculous.<br /><br />Estimize is about crowdsourcing earnings expectations, now stock recommendations. There are a few academics at Chicago Booth who are doing research on our data set right now. While we've done some analysis ourselves, I'm interested to see what they find as well.Unknownhttps://www.blogger.com/profile/12642759895641616024noreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-71877004899275664762012-06-09T10:53:46.471+01:002012-06-09T10:53:46.471+01:00True, to an extent. I guess I'd distinguish be...True, to an extent. I guess I'd distinguish between regulation that sets the rules, and regulatory oversight.<br /><br />I basically do not believe that any regulators can look into massive financial organisations and ensure they don't blow up -- at least not without a truly spectacular simplification of the financial system, that would take us back to the 19th Century, and have a big knock-on effect on trade.<br /><br />Worse, I think the longer they seemed to do so successfully, the bigger the eventual blow-up. Minksy moments and all that.<br /><br />Anyway, I certainly agree stepping back to the halfway house of say the early 1980s regulation wise would help.<br /><br />And I'm not friend of financial insiders, that's for sure. If I was going to introduce draconian, unworkable legislation, the first thing I'd introduce is a cap on banking salaries and bonuses of £1 million.<br /><br />(I know, not realistic. But we're dreaming, right? ;) )Monevatorhttp://monevator.comnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-40810718670338099002012-06-09T07:47:00.417+01:002012-06-09T07:47:00.417+01:00I favour massive and collective first-aid reserves...<i>I favour massive and collective first-aid reserves, partnership structures, and living wills rather than excessive regulation, but all of these present their own problems and distortions, too.</i><br /><br />And none of which can be introduced without legislation and further regulation ... But my point really was about the contribution that <b>deregulation</b> had on the banking crisis. There are some industries, of which banking is the prime example, where relying on competition to regulate behavior has failed many times. In particular the idea that disclosure is enough to allow customers to self-regulate financial markets is a busted flush.<br /><br />The best time to introduce this type of regulation is when the system is already broken. The problem is persuading people to stick to it when the latest crisis becomes a distant memory.timarrhttps://www.blogger.com/profile/06254802085744425067noreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-22206895693364418482012-06-08T20:34:02.816+01:002012-06-08T20:34:02.816+01:00Thought provoking stuff as usual. :) The sore thum...Thought provoking stuff as usual. :) The sore thumb for me though was the paragraph about regulation. <br /><br />Surely introducing regulation is a pretty big butterfly flap into the economic system? I think it's pretty clear regulation distorts systems, as we're seeing happen in real time with banking, now. For instance, banks are deleveraging and boosting capital ratios -- and so become less risky -- but the predictable consequence is that risk is being pushed up to the state level,. We're even seeing more and more pundits call for direct lending from the state to businesses, home owners, and so forth.<br /><br />The blow-up that would eventually result would be a different kind of blow up, and we'll never know what lower or different state spending might have done for good or ill.<br /><br />There's no easy answer to this -- I favour massive and collective first-aid reserves, partnership structures, and living wills rather than excessive regulation, but all of these present their own problems and distortions, too. (Note least where do you keep 20 years worth of set-aside payments from banks in between crashes, and how do you stop that wall of money distorting things, too!? :) )Monevatorhttp://monevator.comnoreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-31438768007256244622012-06-06T13:26:18.048+01:002012-06-06T13:26:18.048+01:00Hi Leigh
You're absolutely correct that focus...Hi Leigh<br /><br />You're absolutely correct that focusing on sell-side analysis may give a skewed picture of the general accuracy of the prediction market. The research on buy-side analysis is very light, but what there is indicates that there isn't much difference in the outcome - see <a href="http://www.people.hbs.edu/dshanthikumar/BuySidePaperMarch52007.pdf" rel="nofollow">Do buy-side analysts outperform the sell-side</a>. The authors have published a number of papers in the same vein providing a similar answer: no, they don't, although it's not entirely clear why this is so.<br /><br />As to the wisdom of crowds, I've written about this a number of times - see, for instance <a href="http://www.psyfitec.com/2012/01/wisdom-of-internet-crowds.html" rel="nofollow">The Wisdom of Internet Crowds</a> or <a href="http://www.psyfitec.com/2012/01/noise-sentiment-and-stocktwits.html" rel="nofollow">Noise, Sentiment and StockTwits</a>. It's an interesting topic and I'll be fascinated to see if such techniques are robust against behavioral biases as they become more popular.timarrhttps://www.blogger.com/profile/06254802085744425067noreply@blogger.comtag:blogger.com,1999:blog-7366878066073177705.post-72399664052099975022012-06-06T12:58:01.663+01:002012-06-06T12:58:01.663+01:00While I do agree that on an individual basis, it&#...While I do agree that on an individual basis, it's near impossible for an individual analyst to accurate predict the fundamentals of a company 4-8 quarters into the future, there are two things I'd like to bring up.<br /><br />One, the research which has been done to date has focused exclusively on the narrow data set of Sell Side estimates. This group has a very flawed incentive structure which leads to a skewed set of estimates. It does not include buy side and independent analysts who are not shackled by that same incentive structure, they are free to share unbiased analysis which has been proven to be more accurate (more on that in a second).<br /><br />And two, you aren't bringing into the picture the wisdom of the crowds here. Earnings forecasts are not about what one individual analyst thinks. They are about what the group, the market as a whole, thinks. Again, the current sell side data set is flawed. But when you open it up to a larger set of individuals, the wisdom of the crowds is able to take effect and you get a far more accurate set of predictions. <br /><br />This is why we built Estimize, to open this up to the whole financial community. It turns out that when there are 20+ estimates for an earnings release, 77% of the time the Estimize consensus is more accurate than the sell side consensus. <br /><br />So yes, company management can move the numbers, but over time as the crowd grows larger and more diverse, you're going to see consensus earnings models from Estimize which are scary accurate. We're already seeing it.Leigh Drogenhttp://www.estimize.comnoreply@blogger.com