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CAPS / Lessons from CAPS


Subject:  Lucky or skillful? Date:  5/23/2010  6:11 PM
Author:  dillbeans Number:  164 of 188

It seems that with the enormous amount of data gathered by the CAPS system, someone should be able to give a pretty good answer to the question of whether some people are better at picking stocks, or just luckier.

I’m not a statistician, so I’m not sure how you’d approach this, but as a wild guess, I’d venture the following: Under either scenario (1. Some people are more skilled and can predictably outperform the market; or 2. It’s random, and those who outperform are just luckier) you would find a reasonably normal distribution of players’ performance, but under scenario #1 the curve would be flatter and under scenario #2 the curve would be taller. Also, under scenario #1, past performance would predict future performance, and under scenario #2, past performance would be unrelated to future performance.

Additionally, to control for players’ risk tolerance, it would be useful to compare players’ performance during a bear market and their performance during a bull market.

It’s hard to imagine that the good folks at TMF haven’t done some of this kind of analysis. Is any of this kind of information available?
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