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Mandelbrot Suggests A Hunt For Financial Patterns
Phoe6 writes "Wired is carrying an Open Letter of Benoît Mandelbrot, the father of the fractal, to the wizards of Wall Street, calling on them to recognize a pattern in the finantial and economic trends in the world. Mandelbrot says, If we can map the human genome, why can't we map how a man loses his livelihood? If millions can contribute a few cycles of their PCs to the search for a signal from outer space, why can't they join a coordinated search for patterns in financial markets?" I'd like to see a debate between Mandelbrot and Friedrich Hayek.
We can find a patterns in the genome because it is deterministic. We can find patterns (to the level of fidelity suggested by Mandelbrot) because the financial markets are stochastic. He should read "Against the Gods" by Bernstein for background.
Considering that Hayek has been dead for over 10 years, I think that debate would definitely be worth seeing.
Mandelbrot watches Pi, has idea...
How would you map this, though? He isn't real specific on WHAT he wants to map/track to predict the market.
Won't there be problems with predicting what will happen, then acting on the predictions? Almost to the point of being self-fulling prophecy?
Also, I remember very vagually that there are laws about getting a computer buying and selling automatically, to try to curb this?
He is still alive?
What would be the outcome? How can markets continue to exist, if their highs and lows can be predicted? I think that the very act of prediction will change the outcome... basically making this impossible to practically achieve.
Visit the Game Programming Wiki!
Technical analysis of markets is a waste of time. When a pattern is found, it is exploited by many, which changes whatever "meaning" the pattern had before.
Send lawyers, guns, and money. Dad, get me out of this.
So..
Am I the only person who thinks finding patterns in the financial markets is useless?
Not because I don't believe they exist but that with their discovery would come a change in the patterns themselves, thus making each 'discovery' relatively useless.
If you knew what the path to losing your livelihood was.. wouldn't you try to do everything possible to _not_ go down that path? Thus opening new paths and forming new patterns which would destroy the old ones.
SysWear - Geek T-shirts (UK/Europe)
rejected this notion...
I suspect these wizards are more concerned with buying and selling than looking at the bigger picture, which, while being nice, and explaining boom and bust, together with mini-boom and mini-bust (ad infinitum), doesn't actually help the predictions...
I thought that while fractals look in some ways to be predictable, they are in fact, when examined in detail, highly unpredictable.
using either linear algorithmic models or a parrallel neural network approach.
However while most people agree that past performance is indicative of the future nothing can predict what is going to happen. Things such as politics and current events have a huge impact but are not easily factored in to a computer program.
There are many sophisticated solutions to recognising and predicting complex patterns but with the stock market there is an element of trying to predict the lottery.
If the lottery is run properly then every draw should be completely random, any pattern detected in past draws should be about a useful as picking your numbers out of a hat.
Are you familiar with Elliot cycles? Probably not. He came up with an idea like this around a decade ago. (Reading back issues of NewScientist can do wonders for you knowledge like this.) These ideas keep getting thrown around but never come to fruition because at their core they are inaccurate. As simple as that. Whether it's based on power laws, or assumptions about the nature of price spikes (up-up-down-up-up-down), trying to reduce markets to mathematical patterns invariably fails.
Why are we supposed to take SlashDot articles about highly academic topics seriously if the editors can't even spell "Mandelbrot" or "financial" (see: "finantial" (sic))?
Honey, I shrunk the Cygwin
I think this is a too complex thing to map.
What will happen in cases where events unrelated to the stock market effect stocks.
Like war, famine, libel, terrorism.
The market is about emotions and guesses, no one responds logically.
What would be scary is if we are predicatable enough for this to work.
8:14 read slashdot /. is the language of nerds.
8:15 restate my assumptions:
1.
2. Everything around us can be represented and understood through discussion threads and trolls.
3. If you graph these numbers, karma emerges.
Therefore: There are karma whores everywhere in nature.
8:17 Press Submit
Think about it: If we knew that the stock market would crash (or soar) next week, would it still happen next week? No, it would happen as soon as possible, because everybody would either try to get out before the crash or in before the boom. Stock markets are about expectations, change the expectations and you change the market.
It'll make you go crazy.
Doesn't knowing the pattern change the pattern? So this chaotic funtion is to have a fixed point?
"It's too bad that stupidity isn't painful." - Anton LaVey
IF this could be done to even a modest level of success in predicting the movement of markets, that would spell the end of Wall St.... their proprietary advantage would become negligible.
As it is now, their proprietary advantage is negligible, but they have good marketing budgets....
Unfortunately, the whole thing sounds like "famous mathematician out of touch with reality".
why can't they join a coordinated search for patterns in financial markets?
They could, but lets say they find a pattern and say "sell SCOX, its price will drop". Everyone will sell SCOX, and its price will drop, but will it be because of preexisting conditions? Or because of the reaction to the "pattern"?
If I have been able to see further than others, it is because I bought a pair of binoculars.
Better then to focus on economies, and what fundamentals control them. Many of those fundamentals seem to be known, i e you know what things are "good" (low taxes on work, flexible labor market, well educated work force, good infrastructure, good governance and legislation wrt to right of ownership, free trade). Problem is quantifying them and make them interact with all the other less known factors...
Now, as should occur to many people(and has probably been stated by the time I post this), doing this kind of analysis and publishing it will undoubtedly affect the markets with that "self-fulfilling prophecy" effect. So this is a wonderful example of how observing the reactions affect their outcome. By stepping back and taking a good look and exactly what's going on, you've significantly altered the very thing you're watching. The trick then, is to publish a study that can take into account its own effects, and manage to be so obscure as to not reveal that facet of itself. You not only predict what the markets will do, you have to predict what the markets will do once the people involved know what they're going to do.
why can't we map how a man loses his livelihood?
Quite easy: Buy SCO-Shares with borrowed money
Move Sig. For great justice.
In a relatively low-dimensional nonlinear system, characterization of the possible trajectories of the system might be possible (determining the bounds of the trajectory, the likelihood of following one manifold versus another). But we already know that the market is a horribly high-dimensional system which is perturbed almost all the time by forces external to the system. Probably the most you can hope for is an analysis leading to the same sorts of conclusions we already know, but which unfortunately are almost entirely dependent upon the perturbations of the system being very large compared to the natural trajectory of the system: market up/downswings based on good/bad news, trends of stocks versus bonds based on interest rates, etc.
In other words, the market is a chaotic system.
This concept was explored in an Aussie movie of a couple of years back, called The Bank. A person previously wronged by a bank was employed to investigate stock market trends, using 'chaos theory' and 'fractal geometry'. Quite an interesting movie to watch.
Mandlebrot suggests donating 5% of the proceeds from all the online dating services to find out how to really get a date on a Saturday night.
But seriously, though there are patterns in most human endevors, it is an extraordinary complicated thing. The reason it hasn't succeeded in the past is that the chaotic factors that determine the outcome of the system are unknown and probably unknowable.
Who ever expected that a bunch of guys wearing hiking gear in Seattle would sweep through the music business in the 90's? How could you predict that scientifically? There's an interesting book called Bellweather by Connie Willis that talks about treads - it's a fun read with an element of truth about predicting future trends.
I lose nothing by running Seti@HOME, and I have nothing (or at least little) to gain. Let's say that my computer is the one that finds the "alien signal" paving way to a real sustainable contact, visits, technology exchange and what have you with an alien civilization. I'd be lucky to end up in a history book.
Similarly, the research groups working on the signal processing, detection, filtering and what have you, will freely share information - again because they have nothing to gain by refraining therefrom.
But financial markets? If my computer can detect that in a few weeks General Electric's shares will plummet - why would I want to give that information away? Would I get a reward from the research group (at a financial institution somewhere most likely) that could (and of course would) benefit from this information?
Would the algorithms even be developed? Why would one group (at Citibank for example) share their information with another group (at GE Capital or whatever)?
There would not be sharing of knowledge. There would not be sharing of results. Simply because the potential gain you have by keeping the information confined is too great.
If you could forecast financial markets reliably on a large scale, imagine how powerful you could become. You could buy the planet.
And this, ladies and gentlemen, is why shit like this won't happen. Not as long as financial markets deal in things that have material value.
If we can map the human genome, why can't we map a man's livelihood? If millions can contribute a few cycles of their PCs to the search for a signal from outer space, why can't they join in a coordinated simulation of Friedrich Hayek?
I saw in this movie a while back (and it must be based on a real thing otherwise the government wouldn't have let it be released) where a man was able to predict the stock market by letting ants feed on the processors causing a weird reaction. He was able to see Fibonacci sequences in clouds, and spirals in rising smoke as it moved from laminar to turbulent flow. I think he even figured out God's name. So this has been done and I know it's true.
To stop the problems with the financial markets, the whole system should be slowed down from the current "by the second" approach to dealing in shares.
To do this, all trades should be done on a weekly basis. During the week you can put in all your share orders, buy or sell, and on Sunday they get computed. Monday moring you can see what you got.
-- oldthinkers unbellyfeel ingsoc
One of the corollaries to Mandelbrot-type thinking is that one could, look at a particular "graph" generated via the Mandelbrot set and generate an equation to explain how it got there.
Granted this would include a huge number of variables, even on a mathematical level, but theoretically, so they say, it is possible.
When thinking of it in terms of Economics, there would be even more variables to consider (ever play Sim City?) but again, it's possible, theoretically, if only on a small scale.
--- There is a man in a smiling bag.
...finding aliens will have great importance for society. Solving AIDS or cancer or other great medical vices of our time will have great importance for society. But financial markets?
Who'd profit from that? Remember that most of the money made in the stock market is made off the losses of other stock holders - one person's loss is another's gain. If you alone can find the pattern, you profit. If everyone finds the pattern, it has very little value.
Something that made everybody run twice as fast, wouldn't in any real way change sports. The fastest would still be the fastest. Have you truly achieved anything then? I don't see this as a useful cause to dedicate my clock cycles to, do you?
Kjella
Live today, because you never know what tomorrow brings
I agree. It'd be funny to think that should such patterns become visible, either they'd be designed with the ability to take into account the effect of their own predictions, or they'd only be able to make predictions on the state had they not interfered. In once scenario it'd be self-fulfillment and in the other, it'd be moot since the moment people reacted to the predictions, the outcomes would inevitably be altered to the point where you'd never know whether or not they were right to begin with... right? This all seems like the kind of thing that would make a plot for an episode of Star Trek : The Next Generation...
Why should I give my processing power to huge capitalistic companies?
I fail to see why anyone should help stock-market dealers get more money.
Distributed capitalism - now in your PC.
We have that already with technical chart analysis. The "science" behind it resembles astrology. But it works most of the time. Why? Because the people believe in it an act accordingly.
I have never understood the markets. They appear to have nothing to do with the performance of a company and everything to do with the moodyness of investors. It seems like every day I hear on the radio that a particular company beat wall street expectations, yet the stock price fell anyway. Or that gas prices are going up because of the fear that there might be a disruption and not a real disruption. How does one model fear? It seems to me that markets are nothing more than a scam.
-- Thou hast strayed far from the path of the Avatar.
I agree that it is a waste from the stand point of prediction - trying to figure out where the market is going. It won't be useful for making money, regulating the market or any other forward looking activity. But it might give some interesting posthoc insight into the behavior of the market and the people and computers in it.
Alternatively, once a pattern is found it is followed by many and becomes a self fulfulling prophesy. Making it more meaningful than initially though.
Getting better tools to assess the risks to and effects on society of market behaviours seems to me like a good idea. Currently we mostly just look at what happens and try to pretend that it will soon get better.
This isn't about predicting individual stocks. As others have already pointed out, that is mostly about guessing the lottery right. But getting better at predicting how the market as a whole will develop, and getting better control over effects of the various tools we try to affect the markets as a whole with, would be useful.
Why SCOX will drop does not matter as long as you are prepared to buy all shares @ $0.01, sell SCO's pencils, legal pads and law books and thus make some nice profit.
By trying to model these markets and acting on them will change the system making your model obselete again.
Well then you could modify your analysis to include the additional effect that exploiting the original analysis had on it. Then iterate this as many times as necessary and hope that it will somehow converge...
I don't think he understands that financial and economic markets are linked to world events. Therefore, in order to accurately predict the movement of financial markets, you will need to be able to predict the future! Do you think that a computer could have predicted 9/11 or the Iraq war or elections of world leaders or the Microsoft settlement or a myriad of other news events which effect the direction of the markets? If anyone actually believes that we will be able to design a computer to do this, feel free to reply to me because I have a bridge to sell you!
(Before all you chart-heads jump on me, I do not think technical analysis or charting has any validity, so please do not waste any time trying to convince me otherwise, because it won't work!)
------
www.moneybythenumbers.com
There is a difference between equilibrium models and models of fluctuations. Traditional economy is about equilibrium models. A typical outcome of an equilibrium model is that the value of a given stock will improve. This knowledge will change the value of the particular stock, and thus the knowledge becomes useless after a while.
However lately it has been found that the many probability distributions in economy follow power laws. This goes for distributions of personal income as well as price fluctuations. Mandelbroot is interested in this because technically speaking a power law has the same kind of scale invariance as a fractal.
Returning to your post. The point is that even though the market has full knowledge about the distribution of fluctuations, the power law distribution may still hold. In other words the knowledge of the results, does not make the model useles.
Mandelbroot is interested in piping money into his research field, and in order to do this he arguies that it is good for mankind to be able to predict the chances of a coming crises in the world economy. I don't buy this argument.
The very nature of stock trading is that no money is created, it's only moved.
Not quite. Transaction fees are the friction in this system. Buying and selling stocks is not a zero sum game. The brokers and exchanges always come out ahead.
The Bank, an Australian movie, is about a mathematician, who utilises the Mandelbrot fractal to predict stock-market movement.
Founder of Mirror Moon - Tsukihime Game Trans
Math is a very crude tool for interpreting the world.
It works great for physics but it's so naive and/or grandoise to think you can solve "humans" with it.
I've seen statisticians try to prodict market behavior by analyzing charts. They're always like
"oh yes this stock will SURELY rise in the next trading day, unless of course we are still on the edge of an ablahblah curve in which case it may go down instead!"
In otherwords "The shit might go up it might go down past trends are no indication of future performance and I am a fucking charalatan"
And of course the guy spews his bullshit with a total straight face and this very self important tone like he is not a fruad. Sometimes people with advanced degrees in math can be so damn myopic.
You can't just map all the data in the stock market and look for a pattern. The amount of socio-financial data to pattern would be... incomprehensible. This is truly a "butterfly effect" situation. Millions of rumors swirl throughout the trading floor - some make it to us as news - and mapping all that data... it's not that it is impossible, but conceiving of that today is unlikely.
You'd almost need some kind of impartial Bayseian analysis to traffic through millions of petabytes of data. There are patterns surely, just like the weather. Someday, they will be just as apparent.
We can't just "find the pattern" in the stock market, since its created by people in the first place. To attempt to find said pattern it to say that human beings act in a particular way by nature, not volition, and that even in the presence of external force, people will act the same way. The problem becomes harder the more people you have working on it. One person may make a model which is accurate in the broad sense, precisely because he is unaware of the other stock market players, and vice versa. If everyone in the market got together to try and figure out the pattern, then the pattern would be whatever everyone wanted.
I want to delete my account but Slashdot doesn't allow it.
As soon as a structure usable to make money has been found, so many people exploit it that it instantaneously disappear. This is especially true when such structures are explained to the public and not kept ultra-secret in some bank basement.
The problem with the market is that the knowledge humans have about it modifies it.
That is the dumbest thing I have read all day.
IMHO, it is not possible to predict the actions of millions of users (not to speak the 1000s of program trading systems) over a long period of time. However, given a sufficiently small window, it may be possible to predict the motion of a security with a better than random probability; and if you have a direct link to trading systems (i.e. low fees), you might be able eke out a meaningful return on investment.
As with most other things, you'd need a hefty investment to pull this off.
I really can't afford it, on my fixed income, being disabled and fighting a host of diseases, but this sounds like a promising project... I would like to donate half my savings!
Just as irrigation is the lifeblood of the Southwest, lifeblood is the soup of cannibals. -- Jack Handy
*Disclaimer* I am not a financial expert nor am I a certified broker.
This guy hasn't the slightest clue how the markets work or the systems already in place. If I read this right he is suggesting that we try to better predict market trends. Not only the trends but specifically those bad spots like the dot.bomb era. I got news for you. About the first thing they teach you in macroeconomics is that expectations drive the markets. So what he should be suggesting is that we predict human expectation. You more need a psychologist rather than a mathmatician. Not to mention we already do have a way to predict expectation. It is called the futures market. It has been proven that the futures market and other similar markets are one of the best indicators, if not the best indicator of market trending. Why? It is a market based on peoples expectations.
There is another problem with his request. If we look at the dot.bomb era, it failed because many of these companies had no business being in business. Great ideas don't always lead to prosperity as we saw. The question is do people tend to expect the worst especially when things are looking so bright? I would say not. The internet/tech boom of the 90s was a self perpetuating demon. The reason that market started to fail was because the anaylsts started coming back to their senses and seeing that these companies were not viable. The very same analysts that were hyping these companies for a few years and making tons of money might I add. So I ask how do you predict when people forgo their knowledge, wisdom, withdraw rational scrutiny, and turn down all the $$$ dollar signs? I would say the answer is not soley in a mathmatical model.
How exactly is this going to help anyone but the big brokerage clearing houses? These are the companies that buy massive amounts of securities and can change the price simply on their buying and selling. That futures market I was talking about earlier, how many average investors have access to it or even know that it exsists? The brokerage industry is rich mans club. It costs money and a lot of it to get better, faster, and more accurate information. The only thing this will do is increase the profits of those that have the money to utilize the tool. It not going to stop the cyclic nature of the markets.
That's my morning rant.
We already know what it would converge to (if it were convergent): Perfect equilibrium. The stock market is the mechanism which capitalism uses to evaluate ideas. If we had a reliable (necessarily convergent) form of prediction, that would give us the market value and we could scrap the stock market altogether, because when everybody knows what the real value is, there's no point in trading anymore. It's obvious that no such thing can exist, so the best you could hope for is prediction of some dynamic. But then every insight into the dynamic of the stock market changes the market and invalidates itself, so you're back to evaluating what is being traded: Ideas and strategies. Looking back is not a good way of going anywhere, except where you're coming from.
No seriously, computer trading is nothing new. Been there done that. Computers are very good at spotting small trends and acting on them very fast. That whole day trading stuff was related to it. Nothing to do with real investment but then the stockmarket ain't got much to do with investment either.
So no there are no laws against you using a computer or whatever to analyse the market and then use that info to trade. Using a computer to do it automaticcaly is also hardly illegal. Major banks do it.
Of course your first point is valid. By acting on your analysis you are influencing the data meaning you have to re-analyse. Looks like someone is going to need a lot of cpu cycles.
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
The Benoît Mandelbrot entry in wikipedia needs a bit of work by anyone not too lazy like me...
Ever heard of Long Term Capital Management? They tried some sophisticated modeling in the late 90's, and at first it went great, but the Asian crisis wiped them out when their models fell apart. All modeling based on historical trends falls apart eventually. I tend to fall in to the camp that believes the mere act of predicting markets makes them less predictable.
The genome is a deterministic pattern which changes only slightly and slowly. Patterns can be found there and are predictable. Yes you can find patterns in financial curves, but face it, finances are based on greed and psychology to a big degree, you cannot really start to predict something, once human psyche comes into the game, you only can start to caculate with uncertainities and can predict that something might happen with a certain risk behind it. What you can find is patterns in old data, which then can be mapped to a certain degree to the causes, but that does not mean that you will get the same pattern again once the causes arise again. There are too many factors involved to prevent that. (social ones, learning factors, environmental onces, and factors caused by society)
When "chaos theory" (better to call it "field", or "approach to complex systems", maybe?) broke upon the world in 1970s, it's not like finance people yawned and ignored it! Au contraire, there was tremendous interest for the subsequent decade, as everyone searched for power laws, fractal dimensions and attractors. But now 30 years have passed, and the conclusion that was reached after research, and not in ignorance, as Mandelbrot suggests, is that financial markets are not predominantly chaotic. In other words, the "randomness" that we see in financial series is unlikely to be generated by underlying repeated actions of some simple nonlinear system; instead, it's really stochastic, really comes from un-anticipatable non-deterministic shocks. And if you really think about how the world works, with companies cheating and countries defaulting on debt, you'll find that intuitive, as well.
Here's one overview of the current state of the matter: Barnett and Serletis, 1998 (disclaimer: found after a 5 minute search of RePEC, there are likely even better papers).
"I am just a customs officer; but I, too, wish to understand what is going on" -- Bertold Brecht
When atom smashing cyclotronists observe the smallest particles known, they have discovered that the simple act of observing them causes change and unpredictibility. While I'm no Nobel candidate, I'm sure that if some pattern were found in financial markets, the discovery of such a pattern would cause the markets to behave much, much differently soley because people would now know which forces cause which outcomes. And as soon as financiers started to manipulate the system to meet their needs, the system would no longer be functioning in a natural state... It would now be following a different pattern altogether. So in a sense, just learning how the markets really work, just by observing them, they would become unpredicitible... all over again.
What if you can predict the reactions to pattern changes?
Wake up dood, most large financial trading firms have been making money on their AI systems for some time now.
has anyone ever heard of the concept it is impossible to observe something without changing it....well I think this is the prime example.
Let me recap Mandelbrot's point here.
In the April 2003 settlement of postbubble fraud charges, the biggest Wall Street firms agreed to cough up $432.5 million to fund "independent" research. Mandelbrot then makes the distinction between two kinds of research. One is the kind of research where analysts study a publicly traded company, and then give recommendations to buy, sell or hold. The other kind is fundamental economic research.
Mandelbrot then suggests that at least five percent of the settlement money be directed toward fundamental research. He does not say that we should look for a way to predict the markets with absolute certainty - that would be impossible, as many here have redundantly pointed out. (He would probably be insulted to know that so many here think that's what he advocated. He's not stupid, you know.)
He's talking about giving a boost to the kind of fundamental economic research that's already taking place. Stuff like risk management, for example. If you read the article, maybe you noticed that in the beginning he clearly gave examples of what's wrong with our present models in risk management.
Mandelbrot is studying price fluctuations, whereas you are talking about equilibrium models. An equilibrium model can typically predict how much the value of a given stock will change a given period of time. It will not return a probability distribution, but rather an average value.
A model of the fluctuations can return a probability distrubution of outcomes. The variance of this distribution will not affect prices,
because investors are only interested in the mean value. Even if the variance is large there will always be an investor who is big enough to wish to take the risk.
Mandelbrot argues that models of fluctuations are important because they can predict the chances of total (economical) disaster. Largescale fluctuations in economy typically follow a power law distribution. This means that we can use the analysis of small fluctuations to predict the changes of large scale fluctuations. In other words we can predict the changes of an upcoming wallstreet panic.
Can we, I rather doubt it... You only can predict some already occurred situations and patterns.
But that does not mean we already have encountered every possible (well probably there are infinite) situations to a crash.
The problem is, that many of these patterns only show one aspect of such a problem, the numbers, but forget about the root. Sociological factors. An overheated stock market does not necessarily need to lead to a total 1929 like crash, as does high stocks have to cause a crash (in most cases they do but not in all)
Sorry this is the search for the holy grail all over again. What will come out of it is simulation patterns for certain kind of situations which can give you a prewarning system. (But probably will be exploitet by a few to become richer and thus the patterns will be rendered useless again)
All I can see here is that in the end you will get as a result a probability based system again which even is questionable.
For crying out loud, some mathematicians book gets extracted in Wired and that's news?
While Mandelbrot is probably a brilliant mathematician, he could take a lesson or two on social change. If he wants to convince Wall Street to change its ways, merely asking them is not going to work.
Besides, why waste your time telling rich people how they could make more money? If you figure out a way to better predict stock market fluctuations, use it to your own advantage. Wall Street investment firms will then flock to you for advice.
Right now he just sounds like yet another utopian crank.
Information: "I want to be anthropomorphized"
There is a lot of scientists who think that because they can create nuclear bombs or map the human genome they can forecast financial markets. They are all wrong, just like Mandelbrot
There is a nobel price winning theory in economics from Robert Lucas who says that because people react to forecasts, the forecasts become invalid. And that is where all these physisists get it wrong, they are not dealing with non-thinking dynamics.
I find all those people amusing, they never seem to make much money, exept by consulting. but ultimately this is a waste of brainpower.
Not without some smelling salts and a heater.
Unknown host pong.
So your saying the market is nothing more than a big casino full of loosers and the house always wins? And its a waste of time?
Get out now before its too late then.
Liberty freedom are no1, not dicks in suits.
all I need is all the matter and energy in the universe plus a little bit more.
since when is Good Will Hunting obligatory?
Yeah sure everyone wants the majic formula regarding financial matters, but here is what happened last time - trillion dollar bet gone really bad --- like where do you think the dot com money came from, where did the enron, worldcom, etc.. money go... easy come easy go??? and teh economic caos it caused and lead to world economic problem and yes... even the war crap we are in now...
SO NO to trying to find the next magic financial formula.... at least until we really much better unberstand and nutralize GREED!...
Or do you really want to help teh few be greedy and take from the many, what they have themselves NOT honestly earned?
I don't care what its called or how sweet it sounds....untill greed is checkmated... there is no formula... only illusion and dillusion..
Of course a mass investigation into this implies a mass awareness of the result. That awareness though would immediately change the pattern as they try to act on it. Better try to figure it out on your lonesome then aye?
From the article: "[Indonesia's] currency fell into a hole 526 percent deep." - WTH? Did its value get multiplied by a factor of minus 4.26?
I guess what he means it that it fell to a level such that to attain its old level, it would have to rise 526%. But putting it this way is just a cheap, sensationalist thing to do.
I've read the book and still don't really understand fractal geometry, but it seems to me that he is using fractal geometry to try to predict volatility, not the actually movement of the stock price. A better prediction of volatility and risk would be very important in risk management and would make the world a richer place so people can afford more SUV's and overpriced coffee.
Something tells me he just got burned on SCOX....
Wah!
This was in his original book.
You describe a model that is much more complicated than the models Mandelbrot are looking for. . There is no big science in these fluctuation models. The only trick is to fit all probability distributions to a power law.
...of the stock market are fear and greed. Once Mandelbrot can find a pattern in these two uniquely human traits, his problem will have solved itself.
Could there be a pattern, which is "stable", although people know it?
... of patterns.
Let there be a pattern "p1" in the financial market. Economists detect it, it gets known, and changes: The current pattern is now "p2".
p2 is researched, and thus financial markets switch to pattern p3... and so on.
We get a sequence p1, p2,
Is this an infinite sequence or will it "converge"?
Maybe there is a final pattern p_n which doesnt alter although researched?
Could this be possible?
Is there any philosophical/mathematical research area, which thinks about this stuff in a generalized, abstract way?
Obviously, the predicting algorithm can account for the results of its prediction. And we can get the results from The cat...probably...
But if everyone knows the price will drop, who will buy the shares you are trying to sell?
see topic
Yep, theres a lot to be said for this.
In fact, now I think about it, Asimov touch upon this in the Foundation series. The only way psychohistory works is that people don't know that it exists. If everyone could read the future, by definition all of their predictions would be wrong.
Big market moves come in response to external unforeseen events.
Terrorist attacks threaten oil supplies? Sell.
Tax laws change to ease growth? Buy.
Election result makes massive spending impossible? Buy.
Top accounting firm is found to have aided in massive fraud? Sell.
No mathematical model of the highs and lows of the market will predict these.
Mandelbrot wasn't the first to model financial markets using fractals. Elliott was.
The only one unchanging pattern of the markets is presence of people trying to discover market patterns.
--
Don't you think that decoding the human genome is just a little bit more important that predicting the price of IBM stock?
Too bad you didn't post this earlier so all the retards could have gotten on the clue train.
:).
Oh well
Any result - or profitable solution would end up in the hands of the rich, who could even further enhance their ability to get even bigger slice of wealth. Wealth distribution is not a question of a math/scientific/financial model, it's a question of the political system, which creates the rules that how the wealth will be eventually redistributed.
(Note: I have degrees in mathematics and finance.) Mandelbrot is not talking about making price predictions in the stock market, e.g. "if the price goes up on Monday, it will go up on Tuesday". As many ./ers have already noticed, any such scheme would be self-defeating: if people began to anticipate a Tuesday price rise, they would buy on Monday, driving the price up a day early -- and erasing the pattern.
For this reason, most financial models assume that stocks follow a kind of stochastic (i.e. random) process called a "martingale", meaning that returns are uncorrelated over time, so you can never beat the market with a strategy like the one above. However, this leaves open the question of which probability distribution the returns follow.
The earliest models, such as the Black-Scholes model for option pricing, assume that stocks follow geometric Brownian motion -- this means that returns follow a normal probability distribution, i.e. the usual bell curve. However, real world markets do not follow a normal distribution: the tails of the distribution are much "fatter", meaning that the Black-Scholes model underestimates the risk of extreme market moves. Therefore, this is a bad risk model, and a company full of Nobel prize winning PhDs, called Long Term Capital Management, followed it off a cliff in the late 90's, nearly bringing down the US financial markets. (For a captivating account of LTCM's rise and fall, check out the book "When Genius Failed".)
This is what Mandelbrot means when he "encourage[s] the study and adoption of more-realistic risk models". We need a better model for the statistical dynamics of markets in order to properly understand (and price) risk -- i.e. to be able to compute accurately the probability that such-and-such price move will happen -- not to make simple-minded stock predictions.
If you're interested in Mandelbrot's own mathematical work on the subject, I'd recommend his book "Fractals and Scaling in Finance". For a great read about the inherent unpredictability of the markets, try the books "A Random Walk Down Wall Street" or "Fooled By Randomness".
Cheers,
IT
Power corrupts. PowerPoint corrupts absolutely.
He's missing the point. This is exactly what systematic hedge funds do. They probably employ half their respective workforces just to research patterns in market behaviour, and write this research into software. This is their competitive advantage. Once that kind of research becomes public knowledge, the hedge fund industry is dead.
Well, this may not be such a good example.
In order for any market predictions (or market advice, for that matter) to be useful data, it must be tied to a specific time period in which is can be used to make a profit. "Buy Enron" doesn't make a lot of sense if you get in for $50K right before it tanks, but it does make sense if you get in at the IPO and sell a month before the big drop.
So you could differentiate between self-fulfilling behaviors and independent behaviors: if the predictions says "SCOX will go from $5 to between $7 and $8 during the time period [1100-1400] tomorrow", and this news gets leaked the day before, then SCOX's price will start to climb right after the news comes out. By the time tomorrow at 11 AM rolls around, the price will already be well above $5, probably somewhere between $7 and $8, if most of the market deems the information trustworthy (lower if it doesn't, unless the stock is remarkably low volume).
Note that a model like this doesn't really even allow for a test case of the independent behaviors unless you tightly control the distribution of your information prior to the period when it becomes useful--or the market doesn't trust the data, or some similar kind of mechanism limits the impact that the predictions have on moneymakers.
But you can bet your ass: if the predictions are useful and accurate, word WILL get out that you have a magic trick. And then, EVERYBODY will immediately start following your buying/selling/shorting decisions, because they assume you're going to be right. Eventually, someone will probably figure out a way to beat your edge--tapping your phone calls to your broker, or bribing/blackmailing your broker--or just stealing the models from you. So this is neither a perfect edge, not an eternal one, because there is too much money to be made in not letting you keep it intact.
As the Libertarians say, "The market will solve."
Why does he say only men lose their economic livelihood? Why not a woman, or just simply "person"?
"Hey Carmine, remember me? You an' me went ta kindergahton tuhgetha."
hi tim
God, you're a kook. No seriously. You're a complete blithering idiot. Judging by google's usenet archives, you only have gotten more insane with the passage of time.
As for the rest of the slashdot posters out there who wrote the equivalent of 3sea's drivel but with the exception of managing to spell the words the and chaos correctly, could I please ask you this: At any time did you think to yourself, "Holy crap, this is MANDELBROT we're talking about. This guy discovered FRACTAL GEOMETRY for chrissake--and added significantly to the field of study known as chaos theory. He's a Sterling Professor of Mathematics at freaking YALE and an IBM Fellow Emeritus. Maybe, just maybe, any retarded rebuttal I can come up with in 10 seconds could have been already considered by him maybe 10 years ago?" Hmmm, do you think?
DaC
I gathered data on daily stock market returns on 5000 companies listed in Standard and Poor's listing of U.S. publicly traded companies.
I normalized then crunched the data through a fractal analysis tool that quantified the level of chaos (randomness) in the changes of each company's stock market value from one day to the next.
I understand the professors studied the data to determine any correlation between each company's chaos metric and the company's eventual bankruptcy.
Now, IANAM* and I have never read any of the resulting research papers, so I cannot tell you many details of the professors' findings.
However, I understand that the hypothesis was that changes in market value characterized by a high amount of chaos (randomness) would correlate to a robust, or healthy business model, just as the life sciences have found that a high degree of chaos correlates with a healthy system. As business managers' actions become constrained by the costs of bankruptcy, so the theory goes, the daily variation in stock market returns become less and less random.
I do recall that they did find a correlation between eventual bankruptcy and suppressed chaos. However, I seem to recall they also found a correlation between a successful turnaround and suppressed chaos.
I guess (IIRC) you could say that suppressed levels of chaos could be a predictor of future business distress, but not necessarily of future business failure.
A list of the research supported by the fractal study follows:
Lindsay, D.H. and A. Campbell. A Fractal Approach to Bankruptcy
Prediction. Business Research Yearbook: Global Business
Perspectives, (2), 1995, 13-17.
Lindsay, D.H. and A. Campbell. The Effect of Deregulation Upon
the Chaotic Properties of Stock Market Time Series Returns.
Business Research Yearbook: Global Business Perspectives, (3),
1996, 13-17.
Lindsay, D.H. and A. Campbell. A Chaos Approach to Bankruptcy
Prediction. Journal of Applied Business Research, (12)4, Fall,
1996, 1-9.
Lindsay, D.H. and Campbell, A. The Effect of Changes in
Proportional Institutional Ownership upon the Chaotic Properties
of Stock Market Time Series Returns. Business Research Yearbook:
Global Business Perspectives, (4), 1997, 267-271.
Lindsay, D.H. and Campbell, A. Beta and the Chaotic Properties of Time Series Returns. Business Research Yearbook: Global Business Perspective, (5), 1998, 7-11.
Lindsay, D.H. and Campbell, A. Public Pension Funds: The Effect of Negative Public Announcements on Chaotic Properties of Returns Business Research Yearbook: Global Business Perspective, (6), 1999,
Lindsay, D.H. and Campbell, A. Risk and Financial Distress: A New Approach, Business Research Yearbook: Global Business Perspective, (7), 2000,
*IANAM - I am not a mathematician. (I am an accountant. Accountants don't need math. We have tables.)
I'm time traveling, right now
Issac Newton once fell for the falacy that Astrology can predict the course of history because he exagerated the importance of the very gravity he helped identify and name. Berating former student and long time friend Sir Edmund Halley who questioned Newtons adherence to the `science', Newton quipped, "I have studied it, Sir. You have not!"
It seems that Dr. Mandelbrot has confused the real world with the similarities in patterns which can be found in the equations of the very fractals he invented. The real world doesn't work that way. Just because it looks like there is a correlation, doesn't mean there is one.
As it turns out, all of the empirical sciences themselves are pretty poor in explaining a great many things. The closer one looks at nature, the more theories get thrown out the window. Just as Ptolomey gave way to Copernicus and then to Kepler and Einstein, and even now with visible and measurable matter thought to occupy less than one quarter of the universe, the success of science has at best been illusary. The more we think we know, the more we are confronted by things we do not.
Science is an asymtotic persuit in which the ultimate truths can never be known. Predicting the financial markets may just be one of those things.
If millions can contribute a few cycles of their PCs to the search for a signal from outer space, why can't they join a coordinated search for patterns in financial markets?
Who are "they"? I seriously doubt that "they" are
in Louis Rukeyser's clique. What's stopping "them", anyway? No internet access?
I'd like to see a debate between Mandelbrot and Friedrich Hayek
Yes, I'd like to see Hayek make Mandelbrot look like an idiot in an attempt to prove that there is no such thing as free will (seems to be the central aim of all scientific research these days) and mathematicians should join up with all those economists who routinely second-guess the markets.
Really? In all the near catastophes cited by Madelbrot (http://www.wired.com/wired/archive/12.08/view.htm l?pg=2?tw=wn_tophead_7), a common theme resonates: irresposible and/or corrupt government regulation of banking systems. But...we've known that for years haven't we - that irresponsible government banking regulation precedes financial catstrophe?
Here, let me make a prediction - AND YOU REMEMBER IT: Argentina will recover from it's current financial crises only to again borrow massive sums of money and yet again crash it's economy. But...along the way, Argentina's economy will be hailed as a "Tiger". Then, after the crash, the Argentines will blame thier irresponsibility on an "International Jewish Banking Conspiracy". It happens EVERY TIME.
See...corrupt government regulation at work. I don't need a model to predict THAT future.
Sorry. You misunderstand a part of trading.
If I have two cows and you have two bulls, we both gain a lot by trading. But a third guy who already had both a cow and a bull has nothing to gain.
Part of the value of a trade is situational. (Will Novell gain more than it loses by buying Ximian? SuSE? Will Sun gain more than it loses by threatening to buy Novell? By actually buying it?)
I think we've pushed this "anyone can grow up to be president" thing too far.
even chaos theory can't predict the effects of corruption--and, if it did, do you think Wall Street would let the results see the light of day?
enjoy ac
I am a big Mandelbrot Fan, so it disappoints me to see that he cant see the patterns already..
The rich tend to get richer, the poor tend to become more of the general population.
In the long term, we all die and it all starts again.
w=f(w).
"Their models were in some sense correct, but they couldn't be put into practical use because of the "everyone runs for the exit at the same time" problem when the model switched from "green light" to "red light"."
"red light", "green light"? Isn't that, that infommercial were you don't have to know anything about trading? Just follow the colored lights.
Also are there any good financial market programs for Linux? Plenty of charting, but otherwise no meat.
It wouldn't work. Let's say Frobozz Inc. sells for $100 a share. During the week, the market receives orders to sell 10,000 shares and orders to buy 2,000 shares. On Sunday, it clears all of the buy orders and only 20% of the sell orders. The people with unfulfilled orders are going to be upset, especially if they want to liquidate their position now, before they suffer additional losses. Investors are suspicious of schemes that reduce liquidity. Loss of liquidity is often a warning sign that something very bad has happened, or is about to happen.
Mea navis aericumbens anguillis abundat
Dear Sir,
Please give me a job.
Yours sincerely,
B Mandelbrot
Paul Beardsell
Yep I immediated thought of the book Fooled By Randomness by Nassim Nicholas Taleb.
He has some very good insights about the markets and human behavior.
If I have two cows and you have two bulls...
In other words, you and yours are getting fsck'd (at least twice).
This is the Internet. You can say "fuck" here. - AC
Mandelbrot has been droning on about this for decades. While its true that stock price movements do have some fractal properties it's not true that Mandelbrot has any further insights on how to predict price movements. His sole aim in getting media attention on this is to get high-paying gigs giving seminars to Wall Street.
Yes, this is especially true for setup patterns that trigger a long term trend. However, when this happens it also means that short term traders trading off short term patterns are getting killed.
"Past attempts at solving the problem have failed. Therefore all present and future attempts must fail too."
;-)
Sure, why not?
After all, if fractals can be used to forecast future trends from past events,
then isn't the fact that "Past attempts at solving the problem have failed"
itself a past event which can be used to demonstrate that
"all present and future attempts must fail too"?
On the stock market you don't trade lifestock (at least not in the sense you describe). You don't need Microsoft shares anymore than you need Novell shares. Trading on the stock market is with few exceptions only done for financial gain through making educated guesses about the monetary value of corporations. Only fools buy stock because they want a part of a company.
Hm. There's saber rattling going on and Bush is a complete asshole. . . I think I'll buy some gold.
(Bought at $330 back before Iraq. Now gold is scratching $400. It'll probably go well over $400 when the economy totally melts down. Although, after that happens, where do you sell it and what currency do you ask for? And anyway, who the heck wants gold when food is now the important thing? Can't eat metal no matter how precious.)
And so. . . Sugar and Spice and everything nice. Invest in reliable food sources. When all else fails, people will still want to eat. Of course, again, if things totally fail in the expected way, then farming will probably be done at gun point. Any investors who don't have their own security team will be chumped.
So then let's see. . . Military stocks are worth something. Why not buy stock in the same company where the Bushes and their friends have controlling shares? I hear Carlyle Group is a mover these days. Of course, you'd have to have bought pre 9-11 to have really cashed in. Though, the kind of people who predicted this, (hello!), are also not the sort who want to invest in blood and murder.
You can apply that same logic to the Bio/pharmaceutical industry.
My point is that anybody can gamble with unknown quantities on the stock market, or you can take your cash and invest it in something you KNOW will make money.
But better yet, by a LONG shot. . . Take your money while it's still worth something, and build your own business venture and make sure you plan and research properly. Playing chaos theory with the stock market is like clutching at lottery tickets; seems childish and lazy to me. Though, to be fair, as I understand it Mandelbrot was thinking more academically than anything else.
-FL
I remember when I was in grad school for fluid dynamics at the Von Karaman Institute there was a big fad on modelling turbulence using fractals. While it is true that turbulence is more accuratley described with fractal as opposed to Euclidian geometry, this doesn't necessarily mean that useful predictive model can be produced. The many attempts at modelling turbulence with fractals didn't really produce models more effective then the usual stochastic models that were used. There may have been more progress made in the past few years, but I'm not aware of any major breakthroughs. Granted turbulence is a different problem than the financial markets, but the deterministic chaotic behavior is the simular. Also if you could model the dynamics of the stock market, it is unlikely that I'd be willing to donate CPU cycles just so a few day traders can get rich. Mark
Let's compare forecasting weather to forecasting the stock market. Based on statitical analysis we can predict what the weather is going to do for about 1 week based largely on massive amounts of historical data. The same thing happens in the stock market (albeit at a much much smaller time interval), these companies have sophisticated databases (www.kx.com optimized for time series analysis) with 50 years worth of stock data. Based on this they can "trend" the market for possibly minutes to hours. But having a minute's or hour's advantage in the stock market is enough of an advantage to make $.
C T= 105&STORY=/www/story/12-06-1999/0001089717/ /216.239.57.104/search?q=cache:fhBwDHEPW3EJ: www.kx.com/press_releases/TTWKXsystems.pdf+lehman+ terabyte&hl=en
e.g. Lehman brothers has 50 years of bond data, you can bet that this is NOT less than 2-3 terabytes of data:
http://www.prnewswire.com/cgi-bin/stories.pl?AC
http:
But just like weather, it is next to impossible to predict random events. Who saw 9/11 happening? How many people are going to die in the next Japanese earthquake? what industries will be affected by higher oil prices? etc etc... we are still at the whims of mother nature and random happenings that the market can not control. Think about it, these "random" events are quite expensive from a cost of life standpoint and an economical standpoint. That is why the US govt dumps money into trying to predict earthquakes, hurricanes, torandoes, flooding, etc etc, because in the end (as the bastion of capitalism) it allows the US to make more money by averting risk.
Other good books to read:
"The Intelligent Investor" Ben Graham (Buffet's tutor)
"Security Analysis: The Classic 1940 Edition" Benjamin Graham, David Dodd
Just like a previous post, once methods are introduced that can "make" money in the market, these methods slowly lose their impact:
from Graham "The moral seems to be that any approach to money making in the stock market which can be easily described and follwed by a lot of people is by its terms too simple and too easy to last."
PS: though I'm a kdb/k noob, I really like the language, it is like python on steroids.
PSS: contact me off list if you want a bit of hand holding to get kdb/k up and running on your machine (the download fits on a floppy)
goanuj1 at yahoo dot com
THE man in modern mathmatics has spoken....i've read similler recent posts by him and other Big Names...basicly all starting to point to the one thing that keeps needling us pure capitalist systems are doomed to eventually well burn out. *sniff* LoL Marx must be laughing, it's the gift that keeps on giving.
I was thinking more of a nekkid oily fight between Mandelbrot and Selma Hayek myself. go Selma!
Richard B. Cheney is responsible for the financial patterns.
Just ask the guy who is playing President of the United Stalags of America.
Remember: Buck Fush In 2004 !!
Regards,
Kilgore Trout
Regards,
Kilgore
There's going to be a lack of enthusiasm for such reseach in a whole lot of boardrooms across corporate America (and elsewhere..) because one of the most common patterns will be stock price manipulation that (for some bizarre reason) regulatory agencies like the SEC just can't seem to notice.
Witness the completely bizarre sh*t that goes on almost daily with SCOX (the SCO Group -- heard of them?)
http://finance.yahoo.com/q/ta?s=SCOX&t=1d&l=on&z=m &q=c&p=&a=&c=
Friday's chart was pretty "normal" compared to most days...
t_t_b
I'm on PJ's "enemies" list! Are you?
Almost a decade ago I heard basically the same lecture by Mandelbrot. He's right saying that current models underpredict the large deviations (if these models were right then stock market crashes would happened once in a million years). However, I haven't seen any progress in applying his methods to stock market during the past decade. That's not a good sign for a theory.
After all, if you're going to replace war with flows of money, what makes you think you are going to have honest scientific discourse in the field of economics?
Its eat or be eaten.
The real solution to war isn't to replace it with economics but rather to direct it against acquisitors who steal from creators. If you do that, then there is a positive sum environment and war becomes far less necessary.
Seastead this.
Mandelbrot is simply pointing out that there is not much fundamental research into market dynamics. In fact, it seems there is much more interest in the "weather prediction" kind of market research, rather than the "climate prediction" kind. It would be very interesting to know just how risky the markets are, in general. It seems right now that everyone predicts trends which are generally pretty correct, but once in a while most everyone is completely wrong. If we could say something about how common such mistakes are, risk management would be easier -- even if each occurence by itself is entirely unpredictable.
Finally! A year of moderation! Ready for 2019?
"Technical analysis of markets is a waste of time."
When you made this comment, were you aware that people apply technical analysis to problems other than forecasting market direction?
What Mandelbrot is suggesting is not the development of a predictive model for entry and exit of positions. Rather, he's suggesting a better model for evaluating the risk in a portfolio once the positions have already been established by whatever means the investor is using. Since risk in this context refers to the risk of unfavorable trade outcomes and trade outcome most definitely *is* a function of price, ((selling price - buying price) * shares transacted), technical methods are applicable.
"When a pattern is found, it is exploited by many, which changes whatever "meaning" the pattern had before."
Your second point is considerably closer to the mark. Any sort of pattern like "if the market closes on a high and it's Thursday..." is unlikely to be of any practical use. However, this doesn't mean all technical analysis is useless. Every trader has to decide whether to be long, short or out, when to get in, when to close the trade and how many shares to transact. Totally disregarding prices while making these decisions is reckless, at best. The alternative is to take price information into account when making these decisions which is, by definition, technical analysis.
As far as "exploited by many" is concerned, it can depend a lot on the payoff structure for the pattern. A pattern that wins every time will quickly be assimilated into common practice but a pattern that is psychologically difficult to trade will remain profitable for much longer. For example all of these patterns have the common trait of having been profitable for decades despite being public knowledge for most of that time. The reason why is that they result in winning trades only about a third of the time, making them emotionally stressful to use, keeping people away. Nevertheless, they make money because the average win is far larger than the average loss.
Besides all that, even if there were a holy grail of technical analysis, most people wouldn't use it. They'd insist that it was just an illusion, so the irony is that skepticism toward technical methods would prevent that holy grail from being crowded out, causing it to last longer than it would in a truly efficient market.
The state is the great fiction by which everyone tries to live at the expense of everybody else. ~F. Bastiat
Mandelbrot talks about avoiding crises and hence the need for better risk models.
Risk models always existed and they have become more and more sophisticated over the last 100 years. Funny enough crises in markets haven't become less.
E.g. In 1987 a lot of people were using portfolio "insurance" where stock-market portfolios were protected by selling futures dynamically against their positions. After the crash those very "insurances" were blamed for the crash because they increased the selling.
Similary crises such in Russia 98 spilled over to other markets in other countries simply because the same market participants were geared to those diverse markets and had to wind down positions.
Even if there isn't an immediate need to go into cash to cover losses elsewhere the risk models will kick in because those those models advise to reduce exposure because overall volatility is increasing.
I expect that the more sophisticated the models become to iron out short term market glitches the bigger the damage will be when one of those rare events hits which are believed to be so unlikely. That is simply so because all events will be interconnected due to financial modelling.
In any case, in an overall evolutionary perspective it doesn't make sense that risks are always correctly judged otherwise no one would invest in novel ideas or markets.
Some markets do have an overall negative return across the whole industry. E.g. mining. If people were rational there wouldn't be any exploration for natural resources at all. But because some hope to strike it rich with their gold or oil stock tons of money are still invested - and that is very usefull for society overall.
BTW, I am intruiged that Mandelbrot mentions the mapping of the human genome. Surely if the human genome is ultimately fully understood and any disease can be treated then most likely the development of the human genome will come to a standstill.
Cheers
...you can't win if you don't enter. :)
Nah, it's more like a pyramid scheme. You win if you get in early and lose if you get in late. It's all about inside information, the kind the billionairs have and you don't.
If you are going to stay (not really that good of an idea at this time space continuum) then at least transfer all your money to an index fund keyed to the S&P 500. That way you will beat 85% of the market analysts.
evil is as evil does
Human beings are not objects. We have free will, the ability to choose. All that any such searching for patterns would be doing is searching for patterns in the historical past -- that is, it would be the act of categorizing history. In the social sciences, there are no fixed relations. See Social Science and Natural Science.
social sciences can never use experience to verify their statemen
Some forms of basic research should be publicly funded because they have no inherent reward. For example, Research on Black Holes.
Research on stock markets, is a whole different kettle of fish. He who achieves a superior understanding of the operation of markets may choose the nature and amount of his reward. This type of research will be amply funded by the private sector, and it is. Every major bank employs a large staff of PhD's in Finance, Economics, Physics, and Math, to research these issues. They are handsomly paid and very well supported. (one of these banks is the biggest APL shop around).
Dr. Mandelbrodt's request that the SEC should use public money to fund research on markets shows that he does not understand the distinction between these types of research. The SEC should not use money as he proposed. The SEC should use money to help it discharge its fundamental duty, which is the protection of investors.
A couple of prominent recent examples are high pressure sales of investments to soldiers and selling non-tradeable real estate trust shares to retirees [the Wall Street journal Story was much better, but is on their subscription only site that I cannot hack]. When the SEC figures out how to spot these types of scams before the newspapers, which are reactive organisms too, then they can start worrying about esoterica like the underlying mathmatcal basis of markets. Of course, by then chickens will have lips.
In the land of the blind, the one-eyed man is king.
Wasn't this one of the technologies in the game alpha centauri? I'm pretty sure it was 'Sentient Economics' where there was AI working to analyze market status active.
"Pi", anyONE?
Nash Equilibrium... ...n person game equilibrium + irrationality + incomplete information = nobel prize.
This is the only solid work on predicting the predictors. Yes, feedback exists. But so do things like deception, and misinformation. Consider things like the prisoners dillema, individual vs group incentives; and you may guess why Mandelbrot will NEVER see a real attempt to make economics a real science.
John Nash is still hard at work considering things like coalition formation, and gravity.
If there is a game you cannot fathom or whose rules keep changing...WHY would you decide to play?
I am the game. You are the game...
Any attempt to model economics is flawed due to Heisenburgs uncertainty principle?
I mean if your observing the system people will react to the model being developed and the system will change surely?
Google for a company named "Long Term Capital". They predicted the market once and did a pretty darn good job of it too. Basically an investment guru figured out how to put together a team of Nobel prize winning economists and some other experts, to build a tool that was successful in predicting markets.
Unfortunately the market then took a random turn and they nearly lost everything. They had so much capital in certain markets that if they had pulled out, they would have collapsed the markets. They had to be bailed out by a cadre of investment bankers.
In the end all it made was an interesting PBS special and nothing more...
However, I bid good luck to anyone embarking on such a journey. Perhaps you will succeed where others have failed!
*Condense fact from the vapor of nuance*
I saw Mandelbrot speak at Berkeley in 2000. He told a story of his wife telling at a glance whether a graphic he'd generated for a movie was actuall a fractal, or had been cropped (a linear operation). I propose Mrs. Mandelbrot take over from Alan Greenspan as our new (wo)Man behind the Curtain at the Fed.
--
make install -not war
I really thought that the Mandelbrot Set illustrated infinite detail derived from iterative equations.
Can the equation be derived from the data set?
If so, does this extrapolate to the real world?
If theoretically so, what computational power is required?
Lew
"The Constitution, the WHOLE Constitution, and nothing but the CONSTITUTION."
http://www.fatkat.com/
I really don't think using pattern recognition on financial markets is exactly a new idea...
Mandelbrot is not the father of the fractal.
... the stock market.
It's much more appropriate to give that title to the Frenchman Julia.
And Julia discovered fractals while studying...
This was over a freaking century ago! Wake up Mandelbrot - you're _still_ not breaking new ground.
FP.
Also FatPhil on SoylentNews, id 863
If it's a waste of time, how come there are firms that make millions per day doing it?
What would be a more valuable use of time in your opinion?
Wallstreet is already doing this, and throwing some pretty powerful brain power and computer power at the problem. Just don't expect the players to share their information with us.
I have a friend who got his PhD in mathematics a few years back. His career options were: 1) Teach (there are far fewer teaching positions than there are candidates), 2) Work for the NSA, 3) or go work for a Wallstreet firm.
He lucked out and got a teaching position at a local city college.
It's not offtopic, dumbass. It's orthogonal.
If my hot dog stand is extremely successful, it will just invite competition until all our profits are minimized, so why bother?
I could solve the problem of people losing their livelihood to the market overnight... by eliminating inflationary currency.
The Philosophy of Liberty | lewrockwell.com
Sorry, Benoit, but this is just crap. The whole point of the markets is that those who have knowledge end up with the money of those who are ignorant. No matter how good your study is, the markets will change and adapt in response to its conclusions. You won't stop any people losing their livelihoods with such a study unless you give the results to them and nobody else (and then, others will lose their livelihoods instead).
Economics is not hard mathematics. It is not hard science. There are absolutely no axiomatic truths to be had; you cannot even build a wooden shithouse of logic on the foundations that are available, because the foundations shift with every new insight -- and the advantage goes to those who can predict how long that insight will be valuable for; when the uninformed will still believe in it but the cognoscenti will have abandoned it.
* I'd like to see a debate between Hayek and Mandelbrot
Sadly for us, it wouldn't be much of a debate. Hayek died in 1992.
...who vote by buying or selling... If more people believe in the charts than don't, then they might have some value. The thing about trading/asset valuation is that it isn't science (in the classical sense). How much is something worth? As much as you and others are willing to pay. Who's making these decisions? people.
there is no thing
what else could you want?
... a pattern as well :)
great movie, a must-see. "Pi"...
Something about the kaballa, as I recall...
You can't map the market, because the market depends on people and world events. You would have to predict or compensate for natural disasters, russia defaulting on loans, rogue traders, etc.
The analogy of the market to the human genome isn't a good one, IMHO, simply because the human genome is essentially in a vacuum, and the market isn't. The market today is very different than it was 20 years ago, but the human genome is still the same as it was 200 years ago.
Yes, but you evaluate the worth of a company's stock on the choices it makes for trading. If it makes poor choices, you expect it's future value to be lower. So this is a judgement call.
Technical analysis that doesn't take into account the wisdom of a company's choices isn't worth much. And this included Mandelbrot based projections. OTOH, if you are evaluating a large number of companies, then a statistical approach begins to become reasonable, because the good and bad decisions start to cancel out. Unfortunately, the stock market doesn't have enough companies of any particular type to make a good statistical sample.
I think we've pushed this "anyone can grow up to be president" thing too far.
Whoever CAN map it, will make a shitload of money.
And making a shitload of money for one person does not equate to "scientific progress for all, resolve a curious problem".
So maybe it will be mapped but by just a few, who will then exploit it... The already rich who can pay for this kind of research. Kind of like probability theory was invented due to an assignment in explaining the roulette.
There are good arguments as to why the market cannot be (or has not effectively been) reduced to mathematics, so how about this then...
A distributed neural net (as already done), with Google news hooked in. Stocks and stock relationships can be tracked over time (as already done) but also correlated to real world events, categorized by keywords (some keywords could indicated severity). This could potentially be monitored and revised in realtime, in order to catch those political and more abstract issues that affect the markets. I figure this would be more effective than pure number crunching and inter-stock pattern matching.
Seems obvious enough, so what am I missing?
Forget thrust, drag, lift and weight. Airplanes fly because of money.
Benoît Mandelbrot and Richard Hudson have valid Ho and Ha (statistical joke) that should be tested, evaluated, and then direct/plan/model development of economics patterns/reality.
Maybe economics and business theoreticians/managers (Sortilege Truth Brokers) want to keep the unknown causes of economic instability. Look at how fear of the unknown has provided religious leaders (for millennium) with significant wealth, control, and welfare of others. God and Money are just scam-artist tools in application with 'cristal-cathedral' economist/brokers and 'bloomberg' televangelist.
'Encouraging the study and adoption of more-realistic risk models. If they do not, the number of crises will just keep growing.' This may be the intent of the economic PTB. There is (I believe) adequate discretionary funds in 'deep-pocket groups', maybe the research will be done (clandestinely) by opposition groups for advantages of plutocrats, but not for stabilizing the global economy. Eventually an evil altruist economist will release the findings to the public, because all good and bad discoveries/ideas eventually leak.
'The fact that each country recovered and the global economy roared on again is testament not to good financial management but to good luck.' The root of all evils are the followers of idols seeking authority/power from dogmatic serendipity. When the global economy does not roar on, then expect war to be justified (as in WWII) Sortilege Truth Brokers using dogmatic serendipity can prove the gullible-believable causes for war as long as the unknown remains unknown (it is a religion model applied to economy).
Anyway (during war) religious/economist catechism might say: ... needed for
justification ...
>_____cutoff the first finger that points blame.
>_____tear-out the tongue of those that accuse.
>_____pluck the eyes from the sockets that see fault.
>_____render the fat of their land to profit for US.
>_____we that deserve everything, should take from them.
>_____the weak and stupid should kill the weak/stupid.
>_____god blesses the wealthy, not the weak and stupid.
>_____death benefits are for those living a good-life
>_____..., anyway continue as
OldHawk777, Reality is a self induced hallucination.
Unaccountable leaders are masters, and unrepresented people are slaves. How do US and EU fare?
i know one:
... *KA-blah*
..."
smoking helps you lose your livelihood.
give it up man, we need you to stick around
longer!
and yes, it's true, the whole finacial system is
very intruiging! many billions and billions of
computer cycles are wasted (or used, depending
on how you look at it) in computing "what might
be up/down tomorrow" on the stock/finacial market.
one thing is for sure, it is completely arbitrary.
99 percent of humans don't make dicsions based
on logic. it's feeling / hormons. the logical part
of a human is to "feel good" the QUICKEST possible
way, and mostly has a negative affect in the
future for everybody
"sir, the ship is complete, but we have no more
trees left
A) Invest in Real Estate instead.
or
B) Invest in a company that you love the work they are doing, regardless if they make a profit.
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They Are Vermin Feeding On Each Other's Feces.
I Hate \.
I tend to think that this type of analysis is at best very difficult, and at worst impossible. I think most people (including market analysts) are far too quick to assign causality - they're a victim of the fact that their own brains are hard-wired to look for patterns where they may or may not exist, and it takes serious effort to restrain this tendency. Of course I may be wrong and somebody could make serious money by "cracking the code" so to speak, but as others here have pointed out, their success would change the nature of the game, necessitating more analysis, ad infinitum.
A decent book that explores this argument is Fooled By Randomness.
Read my keyboard review.
Still not quite. Taxes take far more money out of the market than fees. Even though the long term cap gain rate was cut in the 90's, the sheer price appreciation meant that a tremendous amount of money was sucked right out of the market from capital gains tax revenues. And government spending is quite slow in getting back into the market.