http://alephblog.com/2008/01/09/make-money-while-you-sleep-ii/ Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control Sat, 31 Jul 2010 14:50:54 -0400 hourly 1 http://wordpress.org/?v=3.0 http://alephblog.com/2008/01/09/make-money-while-you-sleep-ii/comment-page-1/#comment-16444 Al Capital Wed, 09 Jan 2008 23:04:37 +0000 http://alephblog.com/2008/01/09/make-money-while-you-sleep-ii/#comment-16444 In an abstract confluence, The Aleph Blog Comments sounds like ABC, but in references to long term versus short term rewards, the core theoretical reference is actually the Aleph set, a term used by mathematician Cantor (the Aleph set is also called the Cantor set). Hence the confluence. In an abstract confluence, The Aleph Blog Comments sounds like ABC, but in references to long term versus short term rewards, the core theoretical reference is actually the Aleph set, a term used by mathematician Cantor (the Aleph set is also called the Cantor set). Hence the confluence.

]]> http://alephblog.com/2008/01/09/make-money-while-you-sleep-ii/comment-page-1/#comment-16441 Josh Stern Wed, 09 Jan 2008 14:52:43 +0000 http://alephblog.com/2008/01/09/make-money-while-you-sleep-ii/#comment-16441 My premise for the discussion of day trading is that the statistical majority of day trades are leveraged positions in liquid stocks where risk control is done through selling with tight stops. For that type of trading, holding positions across potential gaps in the market (always possible when the market is closed) is extra risky (compared with, for example, holding a position across a Fed meeting that happens in the middle of trading hours). So I took the pure risk/daytrading hypothesis to be one that prices are slightly discounted at the end of the day because day traders withdraw their liquidity at that time, while the news flow hypothesis is that the positive returns from outside trading hours simply reflect a large portion of material information released outside of market hours. To test the difference one needs to somehow apportion material news flow to within market and outside of market hours and then see whether the proportion of positive returns outside of market hours exceed or match that proportion. My premise for the discussion of day trading is that the statistical majority of day trades are leveraged positions in liquid stocks where risk control is done through selling with tight stops. For that type of trading, holding positions across potential gaps in the market (always possible when the market is closed) is extra risky (compared with, for example, holding a position across a Fed meeting that happens in the middle of trading hours). So I took the pure risk/daytrading hypothesis to be one that prices are slightly discounted at the end of the day because day traders withdraw their liquidity at that time, while the news flow hypothesis is that the positive returns from outside trading hours simply reflect a large portion of material information released outside of market hours. To test the difference one needs to somehow apportion material news flow to within market and outside of market hours and then see whether the proportion of positive returns outside of market hours exceed or match that proportion.

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