can someone please explain it to me? i am not graspong the concept correctly thanks!
Rather than Jan 1st to December 31st performance history, a shady company will say, “We held a portfolio return of 59.3% from October 12th 1998 to April 2nd, 2005.” Data mining is present to make the time period look great, however this is not easily compared or contrasted to other firms.
also, time period bias in arith vs geometric returns. in arithm rtns, timing of money inflows can overestimnate performance. this is in the quant section
My understanding of time-series bias is that it should be short term so that the bias only exist in the short period and not in the long run. 1998 to 2005 is too long for time period bias to exist. What you’re saying is simply a quoting method, not a bias.
One would prefer to use a full business cycle to be able to make meaningful comparisons.
Using sample serie which is too short or not seasonally adjusted or even too long sample time series can cause biased estimators. The example is beta coefficient calculation.
The time period won’t cause an unbiased estimator to become biased (sample bias doesn’t cause the estimator itself to lose the property that it’s expected value is equal to the true parameter value). The time period bias more so refers to the issue of a non-representative sample (i.e. we didn’t gather data that is an accurate representation of the truth).
The example you gave is an issue of sample representativeness.
Fine. Thanks for clarifying.
Gladly-- I only did it because you will see that term used beyond L1. Your example is a good one for time-period bias, though. Estimating beta for a company is a pretty tricky task without practice and a bit of reasoning (from how many time periods and at what interval should I collect data, has the company dramatically changed in the past x years, will they be changing soon, what should I use as “the market”, etc…).
Thanks for the support, it is always welcome. I was faced with the problem of long and short time series for calculating the beta coefficient during my studies at the course of portfolio management. The certain problem was the calculation of the beta coefficient for stocks in the economy that had structural breakables such as wartime events, transition and similar.
Exactly!