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The market is random and unpredictable when it's random and unpredictable. And it's the opposite when it's the opposite. There will always be a small segment of

The market is random and unpredictable when it's random and unpredictable. And it's the opposite when it's the opposite. There will always be a small segment of traders who will do well. Doesn't mean that they are the Oracle of Delphi. It just means that, in a large enough sampling, the probability of those people existing is not zero. There is nothing in HFT that supports an argument of predictability unless you are another HFT possibly. Insider trading is a crime specifically because it removes the randomness of the market so I'm not sure why that's listed. And if there were, as you say, general predictable events then that does nothing to support the idea that Bridgewater has any special access to those.

melling 11y ago
Dr James Simons says the market isn't random. https://en.m.wikipedia.org/wiki/James_Harris_Simons https://en.m.wikipedia.org/wiki/James_Harris_Simons https://www.ted.com/talks/jim_simons_a_rare_interview_with_the_mathematician_who_cracked_wall_street?language=en https://www.ted.com/talks/jim_simons_a_rare_interview_with_t... Now I'm not sure who to believe, some random guy on the Internet, or a mathematcian who has consistently beat the market.
- quinnchr 11y ago
  And yet Mandelbrot thought the market was random. Now I'm not sure who to believe, one of the most important mathematicians in the last 50 years, or a dude who left the academic community to start a hedge fund.
  - bosma 11y ago
    Mandelbrot did not think the markets were random. He explicitly rejected the Efficient Market Hypothesis. http://www.amazon.com/Mis-behavior-Markets-Benoit-Mandelbrot/dp/0465043550 http://www.amazon.com/Mis-behavior-Markets-Benoit-Mandelbrot...
    - quinnchr 11y ago
      Maybe I'm missing something, but how are randomness and the emh related? AFAIK random walk theory assumes the market is unpredictable and is consistent with the emh while other theories like the adaptive market hypothesis assume the opposite and are still consistent with emh.
      - TheOtherHobbes 11y ago
        If the EMH were true, price curves would always display maximum entropy, i.e. randomness, because there would be no spare redundant information that could be used to make predictions about the future. (This is based on Shannon's Communications Theory, but the maximal entropy bound applies to any system that mixes a predictable signal with random noise.) It doesn't matter if you use an evolutionary explanation for price curves, as in AMH, or claim they're controlled by planetary alignments - because the prediction that price curves show maximum entropy is falsifiable regardless of possible causes. And when it's tested, it is indeed falsified. See e.g. http://www.turingfinance.com/hacking-the-random-walk-hypothesis/ http://www.turingfinance.com/hacking-the-random-walk-hypothe... tl;dr There are standard tools for estimating entropy, and they all agree that markets aren't truly random. Therefore they can't be maximally efficient. Quants make a living by mining the signal from the randomness. There's a lot of debate about the best way to do this, but there's no serious disagreement among quants that it's possible - and the people who make money by employing them tend to agree.
        quinnchr 11y ago
        Interesting, I'm familiar with information theory but not in the context of financial markets. I'm a little confused though because I assume you're referring to the channel coding theorem (mixing a signal with random noise), but that seems like begging the question to me. Don't you have to make the assumption that the market is a predictable signal with noise for it to be applicable? I'm sure people employed to predict the stock market believe they are able to predict the stock market, but as far as I'm aware it's an open question in academia. Also, I should point out, although I do believe markets are random, the intent my original post was more to point out the parent's argument by authority.
- ImTalking 11y ago
  IMO, the market is only non-random due to trader herd-mentality. Everyone using the same software, same algorithms, trend-analysis, etc. If everyone's software says that this particular point is a resistance/support level, then the market will potentially move because of this. But this strategy of waiting-for-the-dumb-traders-to-make-their-move has been practised for decades. But a single random event will invalidate all this herd-mentality in a second. And plus, from your Wiki link, it states: "[Simon's] models are based on analyzing as much data as can be gathered, then looking for non-random movements to make predictions". I don't see that as being earth-shattering considering that random events occur constantly. And how do they know the movements are non-random?

melling 11y ago

Dr James Simons says the market isn't random. https://en.m.wikipedia.org/wiki/James_Harris_Simons https://en.m.wikipedia.org/wiki/James_Harris_Simons https://www.ted.com/talks/jim_simons_a_rare_interview_with_the_mathematician_who_cracked_wall_street?language=en https://www.ted.com/talks/jim_simons_a_rare_interview_with_t... Now I'm not sure who to believe, some random guy on the Internet, or a mathematcian who has consistently beat the market.

quinnchr 11y ago
And yet Mandelbrot thought the market was random. Now I'm not sure who to believe, one of the most important mathematicians in the last 50 years, or a dude who left the academic community to start a hedge fund.
- bosma 11y ago
  Mandelbrot did not think the markets were random. He explicitly rejected the Efficient Market Hypothesis. http://www.amazon.com/Mis-behavior-Markets-Benoit-Mandelbrot/dp/0465043550 http://www.amazon.com/Mis-behavior-Markets-Benoit-Mandelbrot...
  - quinnchr 11y ago
    Maybe I'm missing something, but how are randomness and the emh related? AFAIK random walk theory assumes the market is unpredictable and is consistent with the emh while other theories like the adaptive market hypothesis assume the opposite and are still consistent with emh.
    - TheOtherHobbes 11y ago
      If the EMH were true, price curves would always display maximum entropy, i.e. randomness, because there would be no spare redundant information that could be used to make predictions about the future. (This is based on Shannon's Communications Theory, but the maximal entropy bound applies to any system that mixes a predictable signal with random noise.) It doesn't matter if you use an evolutionary explanation for price curves, as in AMH, or claim they're controlled by planetary alignments - because the prediction that price curves show maximum entropy is falsifiable regardless of possible causes. And when it's tested, it is indeed falsified. See e.g. http://www.turingfinance.com/hacking-the-random-walk-hypothesis/ http://www.turingfinance.com/hacking-the-random-walk-hypothe... tl;dr There are standard tools for estimating entropy, and they all agree that markets aren't truly random. Therefore they can't be maximally efficient. Quants make a living by mining the signal from the randomness. There's a lot of debate about the best way to do this, but there's no serious disagreement among quants that it's possible - and the people who make money by employing them tend to agree.
      - quinnchr 11y ago
        Interesting, I'm familiar with information theory but not in the context of financial markets. I'm a little confused though because I assume you're referring to the channel coding theorem (mixing a signal with random noise), but that seems like begging the question to me. Don't you have to make the assumption that the market is a predictable signal with noise for it to be applicable? I'm sure people employed to predict the stock market believe they are able to predict the stock market, but as far as I'm aware it's an open question in academia. Also, I should point out, although I do believe markets are random, the intent my original post was more to point out the parent's argument by authority.
ImTalking 11y ago
IMO, the market is only non-random due to trader herd-mentality. Everyone using the same software, same algorithms, trend-analysis, etc. If everyone's software says that this particular point is a resistance/support level, then the market will potentially move because of this. But this strategy of waiting-for-the-dumb-traders-to-make-their-move has been practised for decades. But a single random event will invalidate all this herd-mentality in a second. And plus, from your Wiki link, it states: "[Simon's] models are based on analyzing as much data as can be gathered, then looking for non-random movements to make predictions". I don't see that as being earth-shattering considering that random events occur constantly. And how do they know the movements are non-random?