Statistical Significance

M6 Investment Challenge: The Role of Luck and Strategic Considerations ArXiv ID: 2412.04490 “View on arXiv” Authors: Unknown Abstract This article investigates the influence of luck and strategic considerations on performance of teams participating in the M6 investment challenge. We find that there is insufficient evidence to suggest that the extreme Sharpe ratios observed are beyond what one would expect by chance, given the number of teams, and thus not necessarily indicative of the possibility of consistently attaining abnormal returns. Furthermore, we introduce a stylized model of the competition to derive and analyze a portfolio strategy optimized for attaining the top rank. The results demonstrate that the task of achieving the top rank is not necessarily identical to that of attaining the best investment returns in expectation. It is possible to improve one’s chances of winning, even without the ability to attain abnormal returns, by choosing portfolio weights adversarially based on the current competition ranking. Empirical analysis of submitted portfolio weights aligns with this finding. ...

Revisiting Boehmer et al. (2021): Recent Period, Alternative Method, Different Conclusions ArXiv ID: 2403.17095 “View on arXiv” Authors: Unknown Abstract We reassess Boehmer et al. (2021, BJZZ)’s seminal work on the predictive power of retail order imbalance (ROI) for future stock returns. First, we replicate their 2010-2015 analysis in the more recent 2016-2021 period. We find that the ROI’s predictive power weakens significantly. Specifically, past ROI can no longer predict weekly returns on large-cap stocks, and the long-short strategy based on past ROI is no longer profitable. Second, we analyze the effect of using the alternative quote midpoint (QMP) method to identify and sign retail trades on their main conclusions. While the results based on the QMP method align with BJZZ’s findings in 2010-2015, the two methods provide different conclusions in 2016-2021. Our study shows that BJZZ’s original findings are sensitive to the sample period and the approach to identify ROIs. ...