Weekly Top 5 Papers – June 25, 2018

1. Psychopathy by U.S. State by Ryan Murphy (Southern Methodist University (SMU))

2. Is Bitcoin Really Un-Tethered? by John M. Griffin (University of Texas at Austin – Department of Finance) and Amin Shams (University of Texas at Austin – Department of Finance)

I am excited about research that is practical and helps us understand the way our financial system work, and maybe make them better. I typically do research in forensic finance–on things that are potentially, illegal, illicit, or immoral in financial markets.

Although there have credible allegations and evidence that LIBOR, FX, swaps, gold, silver, ect., seem to have been gamed, there is surprisingly extremely little academic work in these fields, perhaps because academics like to work in areas where others are working. But, the gaming of financial markets through financial sophistry is financial thievery and quite harmful to the trust that our financial system depends on.

I think academics can help shed light on markets features that allow gaming and those that do not. A credible and robust non-result can also be interesting and I have published work showing no questionable activity as well. The downloads are interesting because a top academic told me that he didn’t find the topic academically interesting or worthwhile. The paper elicited very different views from other academics–some many were quite interested, but it depends on one’s views about academic research. I think financial research should have applications and not just be useful for ivory-tower lunch discussions.  I would like to encourage researchers to not just write papers to try to get tenure, but to pick areas they are passionate about, where one can hope to truly understand our world, and at least potentially, make a small difference. –  John M. Griffin

3. On Jordan Peterson, Postmodernism, and PoMo-Bashing by Daniel B. Klein (George Mason University – Department of Economics)

Jordan Peterson says that postmodernists say no interpretation is better than another. Hmm. I would no sooner identify Peterson’s adversaries as those who have been misled by ‘postmodernism’ than I would identify them as misled by ‘sustainability,’ ‘diversity,’ ‘multiculturalism,’ or ‘intersectionality.’ Such fare is mainly symptomatic. ‘Postmodern’ invocations are often like ‘sustainability’ invocations: inessential. This piece is not a defense of postmodernism. It is a critique of PoMo-bashing. – Dan Klein

4. Advances in Financial Machine Learning (Chapter 1) by Marcos Lopez de Prado (Lawrence Berkeley National Laboratory)

The rate of failure in quantitative finance is high, and particularly so in financial machine learning. The few managers who succeed amass a large amount of assets, and deliver consistently exceptional performance to their investors. However, that is a rare outcome, for reasons that will become apparent to readers of this SSRN article. Over the past two decades, I have seen many faces come and go, firms started and shut down. I have interviewed dozens of candidates from many failed machine learning funds. I wanted to collect, catalogue and explain some of the errors that led to the demise of those funds. – Marcos López de Prado

5. Long Horizon Predictability: A Cautionary Tale by Jacob Boudoukh (Interdisciplinary Center (IDC) Herzliyah) and Ronen Israel (AQR Capital Management, LLC) and Matthew P. Richardson (New York University (NYU) – Department of Finance)

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