tag:blogger.com,1999:blog-35187314.post320800600860602736..comments2018-10-20T10:35:48.858-04:00Comments on Physics Buzz: Physicists Get to the Root of Randomness in Financial MarketsAPS Webmasterhttp://www.blogger.com/profile/05951833208918853453noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-35187314.post-58248603856483292982018-04-05T22:39:25.480-04:002018-04-05T22:39:25.480-04:00Kendra
In math and physics, coin flipping and the...Kendra<br /><br />In math and physics, coin flipping and the stock market are not random. They are deterministic. There’s a coin flipping device that gives 100% certainty of the outcome. This is impossible if coin flipping is truly random. If you know the trading plan of each buyer and seller (how many shares and what price to trade) you can predict the stock prices and trading volume. Nobody can do this because nobody knows all the buyers and sellers in advance before trading. The apparent randomness is due to incomplete information. This is the classic definition of determinism. Laplace asserted that with complete information, deterministic systems are completely predictable.<br /><br />The stock market may be chaotic, which means small initial errors become big errors later making the system unpredictable in the long term. But chaotic systems are also deterministic. Errors are due to incomplete information. Modelling the stock market as a Brownian motion is theoretically interesting but not very useful. We already know since 1980s that random walk functions can simulate the stock market. We also know the stock market is not truly random. Otherwise, Warren Buffett cannot do better than the average casino player, and we should replace the financial analysts with dart-throwing monkeys.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-35187314.post-22428748710735454932018-04-05T12:40:30.992-04:002018-04-05T12:40:30.992-04:00It isolates causation, which is basically the gold...It isolates causation, which is basically the golden grail of statistical research.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-35187314.post-17396417955580428842018-04-05T02:25:05.759-04:002018-04-05T02:25:05.759-04:00We still cannot predict with certainty the future ...We still cannot predict with certainty the future prices of securities. Where is the value in this statistical effort?Bobhttps://www.blogger.com/profile/17665311979954859271noreply@blogger.com