There are many risks with blindly following models, but one of the more pernicious hazards is overlooking the problems that arise from assuming that in-sample results will hold up with out-of-sample data. The pitfalls are well known, or at least they should be. In any case, the challenge boils down to an all-too-common problem: What looks good on paper doesn’t easily translate into real-world results. Why? Any number of answers apply. For now, let’s focus on one: the data set in a given study doesn’t age well. This stumbling block arises anew this week in an article from MarketWatch that points us to an eight-year-old study that finds a reasonably strong connection between the monthly return on oil prices and the next-month’s return on the stock market.
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● The world economy: Weaker than it looks | The Economist
Growth is healthy in US & Britain. But most of the world economy is in trouble
● OPEC Oil Price Lowest Since 2010 | Wall Street Journal
The average price of OPEC oil has fallen to its lowest level since Dec 2010, just before a string of Arab uprisings pushed oil prices above $100/bbl.
● Merkel Hints at Economic Policy Shift in Germany | NY Times
As evidence grows that the German economy, the largest in Europe, is beginning to stall, Chancellor Angela Merkel expressed a growing willingness on Thursday to use government spending to stimulate growth, a possible shift in position that could ripple across the entire eurozone.
● ECB’s Nowotny: would not rule out QE perpetually | Reuters
European Central Bank policymaker Ewald Nowotny would not rule out forever a policy of quantitative easing, or printing money to buy government bonds.
● Is China’s Bubble the Next Financial Crisis? | Bloomberg
The Chinese credit boom has rapidly turned the country into one of the developing world’s most indebted, according to a new report from London’s Centre for Economic Policy Research.