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Modern Portfolio Theory: A Case Study on Turnips (shawenyao.com)
198 points by todsacerdoti on June 1, 2020 | hide | past | favorite | 19 comments



When I saw this title, it was a 50-50 toss-up for me between Animal Crossing and some event like that which prompted the Onion Futures Act[0].

[0]: https://en.wikipedia.org/wiki/Onion_Futures_Act


I first heard about Vince Kosuga on an episode of Planet Money. To date, still my favorite story I've heard on that podcast. I've told so many people about it


Now that you mention it, that's definitely where I first learned about it too. Great podcast. Thanks for the reminder.


Apparently it's possible to make a futures market resistant to manipulation on the short side, or on the long side, but not both at the same time.

(if onions markets are poor because they're perishable, what might that imply about wage markets?)


What would happen if you made two futures markets, one resistant to manipulation on the short side and the other resistant to manipulation on the long side, through whatever mechanism makes that possible? Would that mean you could detect the presence of manipulation on one side or the other if the prices diverged (though you wouldn't necessarily know which side the manipulation was on).


Good question! I don't know enough about the subject, honestly. Would you like me to try to dig up the paper from which I got that summary?


Yeah, I can't find anything like that on google scholar. The specific claim I find surprising is that it's possible to make a futures market that is resistant to manipulation at all, even in only one direction. I kinda suspect it's going to come down to a non-standard definition of the word "resistant", but if that's not the case it's bound to be interesting.


I think it was Pirrong, "Manipulation of Cash‐Settled Futures Contracts" https://www.jstor.org/stable/10.1086/209671?seq=1#metadata_i...


This was really interesting — can anyone offer a recommendation for a book on the history of these types of schemes? I imagine there’s all sorts of entertaining stories.


I think that's where I first learned the term "corner the market".


Thanks for sharing my post here. There's actually one more thing I tried but didn't make it into the post - if we treat the 12 trading windows as distinct asset classes characterized by their own expected return/volatility plus the pair-wise correlations, it's possible to construct tangent portfolio/efficient frontier and get the optimal weights. The negative expected return on a few of them certainly makes the exercise less meaningful though.


> There's actually one more thing I tried but didn't make it into the post - if we treat the 12 trading windows as distinct asset classes characterized by their own expected return/volatility plus the pair-wise correlations, it's possible to construct tangent portfolio/efficient frontier and get the optimal weights.

This was recently explored here [1] and here [2]

1: https://insignificantbits.com/2020/05/02/turnips/

2: https://news.ycombinator.com/item?id=23058276


Excellent point - I've actually read [1] but not [2]. It's worth noting that neither of them suffers from the same negative weights problem that I am seeing, which is probably due to the fact that 1) an explicit bound between 0 and 1 is imposed on the weights 2) (to a much lesser extent) the analysis is conducted conditional on a specific realized path as of Wednesday.


Thanks for writing this!

What time zone are your dates/times in?


Thanks for the support! I am in EDT (GMT-4).


Turnips are also a good example of globalization. The betting-Game is only existing if you game the local market (your island), but if you move on to export your turnips you can choose the market with the highest price in the world and become filthy rich with low effort.

In Animal Crossing this has no deeper meaning for local and remote markets. Though people take it as another source of income through entry-fees for letting people enter their islands, which is kinda interessting in it's own. You basically make your own island richer (in items, recipes and resources) by exposing it to the world.


Very interesting article! Though I have to point out that the turnips are nothing new to animal crossing. It has been around since the first game (North American release on the game cube at least).


Good article, reminded me of another article about MPT which used it on cryptocurrencies - https://medium.com/@asankhaya/build-a-portfolio-of-cryptocur...


Obligatory Blackadder quote: https://www.youtube.com/watch?v=jD2iYSKHHzo

P.S. Sorry, I couldn't resist. Not entirely off topic though...




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