Chris C asked: I mean in terms of predictability and ‘understandability’.
My mood is actually against EMH, pure randomness, quantum logic, Brownian motion, random walk, Benouli trials and such things - as with all due my respect, the logic behind Prof. Fama’s arguments is pretty flawed. He assumes a world where all investors use some magical “fortunes formula” - and just because everyone uses this formula - it’s no longer a fortunes formula. It’s like if someone discovers a formula to make gold - if he keeps it on his own - voila. If he sends email to CNN about it - the gold is now useless…as cheap as water. In our world however, some investors will use funny technics such as “three white soldiers”, “heads and tails”…while others will rely on C++ neural networks and reasonably sounding concepts - the investors who rely on over(buying/selling) would theoretically be able to buy/sell from the participants who rely on other assumptions - that are not backed with decent logic.
So, the point is obvious: The market is like a game - the better sellers and the better buyers - win. It is unrealistic to assume such thing as EMH as not all investors use and interpret information the same way.
In my personal humble studies though, I was able to reach a certain predictability using neural networks with both linear and non-linear algroythms and with both Backprop and RBF algorythms. Not only that, but even ’simpler’ technical analysis methods proved to be very correct - such as the stochastic oscilator. Interesting point of course comes from the fact that while no technical indicator is 100% punctual - a good money management decision and risk aversity can theoretically produce extraordinary gains.
This is my belief currently, the quest for the fortunes formula doesn’t have to be addressed in some new totally unobserved future directions. The formula is already around! All you need to do is to complete the puzzle. In simple words: Use the power of technical analysis for predictability, use the power of quantitative analysis or money managment and use the power of fundamental analysis for reason and discipline. Combining all this would produce theoretically returns as high as 10000% yearly. Bad? So it’s like:
neural networks + kelly criterion + margin + compound interest + hedging + stocks + anti-non-market risk measures.
Fortunes formula with simple addition… ;).
The market??? To quote the man who proved Einstein wrong(Niels Borh): “Prediction is hard - especially on the future” - hard…but NOT impossible. And to quote Hegel: “The only thing we have learnt from history is that we haven’t learnt anything” - speaking of how some good concepts lie around and people are not ready to use them…for some reason.
Thanks
Amber
