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Misc

Things took a quick turn

directions

So a funny thing happened on the way to making my next major life transition in May. I had to start making it at the beginning of February! That’s why things went a bit quiet on the blog.

I was supposed to be in Sweden at least through April per the coaching contract I talked about in my New Year’s post. Rather abruptly, though, the club told me at the start of this month that they were terminating my contract. My coaching friends were stunned – even the ones in Sweden (maybe especially them). I was told “differences in coaching philosophy”. Some suggested the real reason was probably money, but in the end it doesn’t really matter. I was getting ready for a transition at season’s end. It just came a bit sooner than expected.

Unfortunately, because things happened this way I hadn’t really begun a proper job search. I was thinking I’d probably need to wait until at least the end of February to do that given likely time lines and expectations for when I’d start a new job.

So now I’m back in the States. I did have one poker in the fire before all this happened, so it might not be long before I have a new job. Or not. We’ll have to see.

The one thing that doesn’t change, though, is my intention to produce a revised version of The Essentials of Trading and to share with people my observations about the reality of trader performance based on my PhD research.

Oh, by the way. I’m now officially Dr. Forman. I found that out about two weeks ago. Everything has been approved and ratified and I’m now a full-fledged PhD. If you haven’t already had a look, here’s some details about my dissertation and how you can check it out.

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News & Updates

Feel like reading a PhD thesis?

PhDAt last!

On Wednesday my internal examiner approved the edits I did to my PhD thesis and I submitted it to the school’s online repository. That’s the last of the requirements on my end. All that’s left is for formal approval to be given by the Vice Chancellor’s Executive Group, which should happen this week (if it hasn’t already by the time you’re reading this). Then the long PhD process will truly be complete!

The title of my thesis is Trader Leverage Use and Social Interaction: The Performance Implications of Overconfidence and Social Network Participation on Retail Traders.

Here’s the abstract:

Overconfidence and its relationship to investor market participation is well established in the finance literature. The research into investors and social networks is only in its infancy, however. This thesis extends the literature by expanding on both subjects individually, then bringing them together.

Empirical work on individual investors in the existing literature links overconfidence and excess trading, resulting in impaired returns. The preferred activity metric, monthly account turnover, encapsulates two separate elements, though. One is trade frequency. The other is leverage use. Chapter 4 of this thesis theorizes based on the existing literature that in fact trade frequency is not a good measure of overconfidence. It then demonstrates through empirical analysis of a group of individual non-professional foreign exchange traders that leverage is much more suitable to that role.

Chapter 5 turns the focus to social networks, particularly with respect to information transfer. The literature in finance anticipates that network members benefit from their membership. Further, network position (social capital) enhances that benefit. This thesis challenges that expectation with respect to non-professional investors. Findings based on analysis of members of an online retail foreign exchange trader social network indicate that while there may be an educational benefit accruing to unsophisticated members, for more sophisticated ones membership appears to have a negative effect on returns.

One potential explanation for the negative impact of network membership is explored in Chapter 6 in the form of impression management. It is hypothesized that sophisticated investors are influenced in their behaviour by the realization they are being observed, and also the size of their audience. Analysis of foreign exchange traders indicates an increase in leverage use among sophisticated investors as their audience size increases, coinciding with a decline in trade excess returns, making the case for an observation-based rise in overconfidence.

Naturally, the thesis is heavily academic. I tried to make it as readable as possible, but you can only take things so far given expectations for language and style. If you want to have a look, you can get a PDF copy here.

The page count is 240, though there are a lot of tables. If you do actually read it, I’d be happy to hear what you think.

Categories
Misc

Doing a PhD to study all you crazy traders

Over the last couple of years I have been researching PhD programs with an eye toward taking that final step in my academic career (having already done an MBA). I’ve had a former professor of mine pushing me in this direction just about ever since I finished my undergraduate studies oh so many years ago. I resisted for many reasons, but a couple years back it occurred to me that one of my major excuses – lack of shareable experience to bring into the classroom – wasn’t really valid any longer. That started the process.

This week I was offered a PhD studentship by the business school at the University of Exeter in England and have accepted. I still have to be offered and accept admission by the university proper, but that is just a formality and should happen shortly. The business school wouldn’t offer me the funding if they weren’t going to accept me, after all.

That means I’ll be leaving my current position as a professional analyst, but it most certainly doesn’t mean I’ll be leaving the markets or trading. In fact, that will be the focus of my dissertation. My research proposal for admission was on the subject of individual retail forex trader profitability and performance. It fits into the general area of Behavioral Finance, which is basically the counter-point field to classic efficient markets theory.

I’m really looking forward to delving into the data (I’ll be using a big set of trader transactional and performance data for my studies) and the sort of results that come from it. As much as this will be academically oriented work, I see lots of opportunity for it to be applied in the practical arena.

Do you like Doctor of Trading or Trading Doctor better? 🙂