## The Trump Rally, Really?

Today, The Dow Jones Industrial Average (DJIA) surpassed the 20,000 mark for the first time in history. At the time of the writing of this posting (12:31 PM on January 25), it is actually 20,058.29, so, I am not sure if it will close above 20,000 points, but, nevertheless, a lot of people are crediting this to Trump’s presidency, but I’m not so sure you can do that. First, the point must be made, that it is really the Obama economic policies that set the stage for this. On January 20, 2009, when Obama was sworn in, the Dow closed at 7949.089844 points. On November 8, 2016, when Trump won the election, the Dow closed at 18332.74023. So, during the Obama administration, the Dow increased by approximately 130.63%. I just wanted to make that point.

Now, the question that I wanted to investigate was would the Dow have closed past 20,000 points had Trump not been elected president. That is, assuming that the Obama administration policies and subsequent effects on the Dow were allowed to continue, would the Dow have surpassed 20,000 points.

For this, I looked at the DJIA data from January 20, 2009 (Obama’s first inauguration) to November 08, 2016 (Trump’s election). I specifically calculated the daily returns and discovered that they are approximately normally distributed using a kernel density method:

Importantly, one can calculate that the mean daily returns, $\mu = 0.00045497596503813$, while the volatility in daily returns, $\sigma = 0.0100872666938282$. Indeed, the volatility in daily returns for the DJIA was found to be relatively high during this period. Finally, the DJIA closed at 18332.74023 points on election night, November 08, 2016, which was 53 business days ago.

The daily dynamics of the DJIA can be modelled by the following stochastic differential equation:

$S_{t} = S_{t-1} + \mu S_{t-1} dt + \sigma S_{t-1} dW$,

where $dW$ denotes a Wiener/Brownian motion process. Simulating this on computer, I ran 2,000,000 Monte Carlo simulations to simulate the DJIA closing price 53 business days from November 08, 2016, that is, January 25, 2017. The results of some of these simulations are shown below:

We concluded the following from our simulation. At the end of January 25, 2017, the DJIA was predicted to close at:

$18778.51676 \pm 1380.42445$

That is, the DJIA would be expected to close anywhere between 17398.0923062336 and 20158.94121. This range, albeit wide, is due to the high volatility of the daily returns in the DJIA, but, as you can see, it is perfectly feasible that the DJIA would have surpassed 20,000 points if Trump would not have been elected president.

Further, perhaps what is of more importance is the probability that the DJIA would surpass 20,000 points at any time during this 54-day period. We found the following:

One sees that there is an almost 20% (more precisely, 18.53%) probability that the DJIA would close above 20,000 points on January 25, 2017 had Trump not been elected president. Since, by all accounts, the DJIA exceeding 20,000 points is considered to be an extremely rare/historic event, the fact that the probability is found to be almost 20% is actually quite significant, and shows, that it is quite likely that a Trump administration actually has little to do with the DJIA exceeding 20,000 points.

Although, this simulation was just for 53 working days from Nov 08, 2016, one can see that the probability of the DJIA exceeding 20,000 at closing day is monotonically increasing with every passing day. It is therefore quite feasible to conclude that Trump being president actually has little to do with the DJIA exceeding 20,000 points, rather, one can really attribute it to the day-to-day volatility of the DJIA!

## Some Thoughts on The US GDP

Here are some thoughts on the US GDP based on some data I’ve been looking at recently, mostly motivated by some Donald Trump supporters that have been criticizing President Obama’s record on the GDP and the economy.

First, analyzing the real GDP’s average growth per year, we obtain that (based on a least squares regression analysis)

According to these calculations, President Clinton’s economic policies led to the best average GDP growth rate at $436 Billion / year. President Reagan and President Obama have almost identical average GDP growth rates in the neighbourhood of$320 Billion / year. However, an obvious caveat is that President Obama’s GDP record is still missing two years of data, so I will need to revisit these calculations in two years! Also, it should be noted that, historically, the US GDP has grown at an average of about \$184 Billion / year.

The second point I wanted to address is several Trump supporters who keep comparing the average real GDP annual percentage change between President Reagan and President Obama. Although they are citing the averages, they are not mentioning the standard deviations! Computing these we find that:

Looking at these calculations, we find that Presidents Clinton and Obama had the most stable growth in year-to-year real GDP %. Presidents Bush and Reagan had highly unstable GDP growth, with President Bush’s being far worse than President Reagan’s. Further, Trump supporters and most Republicans seem quick to point out the mean of 3.637% figure associated with President Reagan, but the point is this is +/- 2.55%, which indicates high volatility in the GDP under President Reagan, which has not been the case under President Obama.

Another observation I would like to point out is that very few people have been mentioning the fact that the annual real US GDP % is in fact correlated to that of other countries. Based on data from the World Bank, one can compute the following correlations:

One sees that the correlation between the annual growth % of the US real GDP and Canada is 0.826, while for Estonia and The UK is roughly close to 0.7. Therefore, evidently, any President that claims that his policies will increase the GDP, is not being truthful, since, it is quite likely that these numbers also depend on those for other countries, which, I am not entirely  convinced a US President has complete control over!

My final observation is with respect to the quarterly GDP numbers. There are some articles that I have seen in recent days in addition to several television segments in which Trump supporters are continuously citing how better Reagan’s quarterly GDP numbers were compared to Obama’s. We now show that in actuality this is not the case.

The problem is that most of the “analysts” are just looking at the raw data, which on its face value actually doesn’t tell you much, since, as expected, fluctuates. Below, we analyze the quarterly GDP% data during the tenure of both Presidents Reagan and Obama, from 1982-1988 and 2010-2016 respectively, comparing data from the same length of time.

For Reagan, we obtain:

For Obama, we obtain:

The only way to reasonably compare these two data sets is to analyze the rate at which the GDP % has increased in time. Since the data is nonlinear in time, this means we must calculate the derivatives at instants of time / each quarter. We first performed cubic spline interpolation to fit curves to these data sets, which gave extremely good results:

We then numerically computed the derivative of these curves at each quarter and obtained:

The dashed curves in the above plot are plots of the derivatives of each curve at each quarter. In terms of numbers, these were found to be:

Summarizing the table above in graphical format, we obtain:

As can be calculated easily, Obama has higher GDP quarterly growth numbers for 15/26 (57.69%) quarters. Therefore, even looking at the quarterly real GDP numbers, overall, President Obama outperforms President Reagan.

Thanks to Hargun Singh Kohli, B.A. Honours, LL.B. for the data collection and processing part of this analysis.

## 2016 Michigan Primary Predictions

Using the Monte Carlo techniques I have described in earlier posts, I ran several simulations today to try to predict who will win the 2016 Michigan primaries. Here is what I found:

For the Republican primaries, I predict:

Trump: 89.64% chance of winning

Cruz: 5.01% chance of winning

Kasich: 3.29% chance of winning

Rubio: 2.06% chance of winning

The following plot is a histogram of the simulations:

## The Effect of Individual State Election Results on The National Election

A short post by me today. I wanted to look at the which states are important in winning the national election. Looking at the last 14 presidential elections, I generated the following correlation plot:

For those not familiar with how correlation plots work, the number bar on the right-hand-side of the graph indicates the correlation between a state on the left side with a state at the top, with the last row and column respectively indicating the national presidential election winner. Dark blue circles representing a correlation close to 1, indicate a strong relationship between the two variables, while orange-to-red circles representing a correlation close to -1 indicate a strong anti-correlation between the two variables, while almost white circles indicate no correlation between the two variables.

For example, one can see there is a very strong correlation between who wins Nevada and the winner of the national election. Indeed, Nevada has picked the last 13 of 14 U.S. Presidents. Darker blue circles indicate a strong correlation, while lighter orange-red circles indicate a weak correlation. This also shows the correlation between winning states. For example, from the plot above, candidates who win Alabama have a good chance of winning Mississippi or Wyoming, but virtually no chance of winning California.

This could serve as a potential guide in determining which states are extremely important to win during the election season!

## Do More Gun Laws Prevent Gun Violence?

Update: March 16, 2018: I have received quite a few comments about my critique of Volokh’s WaPo article, and just as a summary of my reply back to those comments:

The main point that I made and demonstrated below is that the concept of a correlation is only useful as a measure of linearity between the two variables you are comparing. ALL of Volokh’s correlations that he computes are close to zero: 0.032 for correlation between homicide rate, including gun accidents and the Brady score, 0.065 for correlation between intentional homicide rate and Brady score, 0.0178, correlation between the homicide rate including gun accidents and the National Journal score, and 0.0511, correlation between just the intentional homicide rate and National Journal score. All of these numbers are completely *useless*. You cannot conclude anything from these scores. All you can conclude is that the relationship between homicide rate (including or not including gun accidents) and the Brady score is highly nonlinear. Since they are nonlinear, I have investigated this nonlinear relationship using data science methodologies such as regression trees.

Article begins below:

Abstract:

1. The number and quality of gun-control laws a state has drastically effects the number of gun-related deaths.
2. Other factors like mean household income play a smaller role in the number of gun-related deaths.
3. Factors like the amount of money a state spends on mental-health care has a negligible effect on the number of gun-related deaths. This point is quite important as there are a number of policy-makers that consistently argue that the focus needs to be on the mentally ill and that this will curb the number of gun-related deaths.

Contents:

1. Critique of Recent Gun-Control Opposition Studies
2. A more correct way to look at the Gun Deaths data using data science methodologies.

A Critique of Recent Gun-Control Opposition Studies

In light of the recent tragedy in Oregon which is part of a disturbing trend in an increase in gun violence in The United States, we are once again in the aftermath where President Obama and most Democrats are advocating for more gun laws that they claim would aid in decreasing gun violence while their Republican counterparts are as usual arguing the precise opposite. Indeed, there have been two very simplified  “studies” presented in the media thus far that have been cited frequently by gun advocates:

I have singled out these two examples, but most of the studies claiming to “do statistics” follow a similar suit and methodology, so I have listed them here. It should be noted that these studies are extremely simplified, as they compute correlations, while in reality they only look at two factors (the gun death rate and a state’s “Brady grade”). As we show below, the answer to the question of interest and one that allows us to determine causation and correlation must depend on several state-dependent factors and hence, requires deeper statistical learning methodologies, of which NONE of the second amendment advocates seem to be aware of.

The reason why one cannot deduce anything significant from correlations as is done in Volokh’s article is correlation coefficients are good “summary statistics” but they hardly tell you anything deep about the data you are working with. For example, in Volokh’s article, he uses MS Excel to compute the correlations between a pair of variables, but Excel itself uses the Pearson correlation coefficient, which essentially is a measure of the linearity between two variables. If the underlying data exhibits a nonlinear relationship, the correlation coefficient will return a small value, but this in no way means there is no relationship between the data, it just means it is not linear. Similarly, other correlation coefficient computations make other assumptions about the data such as coming from a normal distribution, which is strange to assume from the onset. (There is also the more technical issue that a state’s Brady grade is not exactly a random variable. So measuring the correlation between a supposed random variable (the number of homicides) and a non-random variable is not exactly a sound idea.)

A simple example of where the correlation calculation fails is to try to determine the relationship between the following set of data. Consider 2 variables, x and y. Let x have the data

x              y
-1.0000  0.2420
-0.9000  0.2661
-0.8000  0.2897
-0.7000  0.3123
-0.6000  0.3332
-0.5000  0.3521
-0.4000  0.3683
-0.3000  0.3814
-0.2000  0.3910
-0.1000  0.3970
0            0.3989
0.1000  0.3970
0.2000  0.3910
0.3000  0.3814
0.4000  0.3683
0.5000  0.3521
0.6000  0.3332
0.7000  0.3123
0.8000  0.2897
0.9000  0.2661
1.0000  0.2420

If one tries to compute the correlation between x and y, one will obtain that the correlation coefficient is zero! (Try it!) A simple conclusion would be that therefore there is no linear causation/dependence between x and y. But, if one now makes a scatter plot of x and y, one gets:

Despite having zero correlation, there is apparently a very strong relationship between x and y. In fact, after some analysis,  one can show that they obey the following relationship:

$y = \frac{1}{\sqrt{2 \pi}} e^{-(x^2)/2}$,

that is, y is the normal distribution. So, in this example and similar examples where there is a strong nonlinear relationship between the two variables, the correlation, in particular, the Pearson correlation is meaningless. Strangely, despite this, Volokh uses a near-zero correlation of his data to demonstrate that there is no correlation between a state’s gun score and the number of gun-related deaths, but this is not what his results show! He is misinterpreting his calculations.

Indeed, looking at Volokh’s specific example of comparing the Brady score to the number of Homicides, one gets the following scatter plot:

Volokh that computes the Pearson correlation between the two variables and obtains a result of 0.0323, that is, quite close to zero, which leads him to conclude that there is no correlation between the two. But, this is not what this result means. What it is saying in this case, is that there is a strong nonlinear relationship between the two. Even a very rough analysis between the two variables, and as I’ve said above, and demonstrate below, looking at two variables for a state is hardly useful, but for argument sake, there is a rough sinusoidal relationship between the two variables:

In fact, the fit of this sum-of-sines curve is an 8-term sine function with a R^2 of 0.5322. So, it’s not great, but there is clearly at least some causal behaviour between the two variables. But, I will say again, that due to the clustering of points around zero on the x-axis above, there will be simply NO function that fits the points, because it will not be one-to-one and onto, that is, there are repeated x-points for the same y-value in the data, and this is problematic. So, looking at two variables is not useful at all, and what this calculation shows is that the relationship if there is one would be strongly nonlinear, so measuring the correlation doesn’t make any sense.

Therefore, one requires a much deeper analysis, which we attempt to provide below.

A more correct way to look at the Gun Homicide data using data science methodologies.

I wanted to analyze using data science methodologies which side is correct. Due to limited time resources, I was only able to look at data from previous years (2010-2014) and looked at state-by-state data comparing:

1. # of Firearm deaths per 100,000 people (Data from: http://kff.org/other/state-indicator/firearms-death-rate-per-100000/)
2. Total State Population (Obtained from Wikipedia)
3. Population Density / Square Mile (Obtained from Wikipedia)
4. Median Household Income (Obtained from Wikipedia)
5. Gun Law Grade: This data was obtained from http://gunlawscorecard.org/, which is The Law Center to Prevent Gun Violence and grades each state based on the number and quality of their gun laws using letter grades, i.e., A,A+,B+,F, etc… To use this data in the data science algorithms, I converted each letter grade to a numerical grade based on the following scale: A+: 90, A-: 90, A: 85, B:73,B-:70,B+:77,C:63,C-:60,C+:67, D:53,D-:50,D+:57,F:0.
6. State Mental Health Agency Per Capita Mental Health Services Expenditures (Obtained from: http://kff.org/other/state-indicator/smha-expenditures-per-capita/#table)
7. Some data was available for some years and not for others, so there are very slight percentage changes from year-to-year, but overall, this should have a negligible effect on the results.

This is what I found.

Using a boosted regression tree algorithm, I wanted to find which are the largest contributing factors to the number of firearm deaths per 100,000 people and found:

(The above numbers were calculated from a gradient boosted model with a gaussian loss function. 5000 iterations were performed.)

One sees right away that the quality and number of gun laws a state has is the overwhelming factor in the number of gun-related deaths, with the amount of money a state spends on mental health services having a negligible effect.

Next, I created a regression tree to analyze this problem further. I found the following:

The numbers in the very last level of each tree indicate the number of gun-related deaths. One sees that once again where the individual state’s gun law grade is above 73.5%, that is, higher than a “B”, the number of gun-related deaths is at its lowest at a predicted 5.7 / 100,000 people. (Note that: the sum of squares error for this regression was found to be 3.838). Interestingly, the regression tree also predicts that highest number of gun-related deaths all occur for states that score an “F”!

In fact, using a Principle Components Analysis (PCA), and plotting the first two principle components, we find that:

One sees from this PCA analysis, that states that have a high gun-law grade have a low death rate.

Finally, using K-means clustering, I found the following:

One sees from the above results, the states that have a very low “Gun Law grade” are clustered together in having the highest firearms death rate. (See the fourth column in this matrix). That is, zooming in:

This question has been raised many times because the gun deaths number above includes the number of self-inflicted gun deaths. The argument has been that if we filter out this data from the gun deaths above, the arguments in this article fall apart. As I now show, this is in fact, not the case. Using the state-by-state firearm suicide rate from (http://archinte.jamanetwork.com/article.aspx?articleid=1661390), I performed this filtering to obtain the following principle components analysis biplot:

One sees that the PCA puts approximately equal weight (loadings) onto population density, gun-law grade, and median household income. It is quite clear that states that have a very high gun-law grade have a low amount of gun murders, and vice-versa.

One sees that the data shows that there is a very large anti-correlation between a state’s gun law grade and the death rate. There is also a very small anti-correlation between how much a state spends on mental health care and the death rate.

Therefore, the conclusions one can draw immediately are:

1. The number and quality of gun-control laws a state has drastically effects the number of gun-related deaths.
2. Other factors like mean household income play a smaller role in the number of gun-related deaths.
3. Factors like the amount of money a state spends on mental-health care has a negligible effect on the number of gun-related deaths. This point is quite important as there are a number of policy-makers that consistently argue that the focus needs to be on the mentally ill and that this will curb the number of gun-related deaths.
4. It would be interesting to apply these methodologies to data from other years. I will perhaps pursue this at a later time.

## Hillary Clinton Still Has the Best Chance of Being The Democratic Party Nominee in 2016

A great deal of noise has been made in the previous weeks about the surge in the polls of Donald Trump and Bernie Sanders. This has led some people to question whether Hillary Clinton will actually end up being the Democratic party nominee in 2016. This was further evidenced by the fact that Sanders is now leading Clinton in the latest New Hampshire polls.

However, running an analysis on current polling data, I still believe that even though it is very early, Hillary Clinton still has the best chance of being the Democratic party nominee. In fact, running some algorithms against the current data, I found that:

Hillary Clinton: $\boxed{99.9 \%}$ chance of winning Democratic nomination.

Bernie Sanders: $\boxed{0.01\%}$ chance of winning Democratic nomination.

These numbers were deduced from an algorithm that used non-parametric methods to obtain the following probability density functions.

Thanks to Hargun Singh Kohli for data compilation and research.