4 ms·

Could you elaborate why predicting stock prices is an invalid example?

fnbr 9y ago
It's almost impossible, for two reasons: 1) It's incredibly difficult to create strategies that work because there are thousands of highly trained, highly paid people working to create strategies. 2) Any strategy that you do create will self-correct over time and become useless, as strategies find examples where the market has misjudged prices; by exploiting the strategy, the market should, over time, stop misjudging the prices. The "EMH" that the parent is referring to is the Efficient Market Hypothesis, which states that the market price is the "correct" price, and that it is impossible to predict a better price, as the current price incorporates all possible information. I, personally, don't subscribe to that version of the EMH; I believe the one implied by 1), which is that it's difficult to compete with the thousands of math PhDs working on Wall Street.
- panarky 9y ago
  > It's almost impossible ... You'd think so, and yet ML is transforming investment and trading strategies. From The Economist: Castle Ridge Asset Management, a Toronto-based upstart, has achieved annual average returns of 32% since its founding in 2013. It uses a sophisticated machine-learning system, like those used to model evolutionary biology, to make investment decisions. It is so sensitive, claims the firm’s chief executive, Adrian de Valois-Franklin, that it picked up 24 acquisitions before they were even announced. Source: http://www.economist.com/news/finance-and-economics/21722685-fields-trading-credit-assessment-fraud-prevention-machine-learning http://www.economist.com/news/finance-and-economics/21722685...
- Eliezer 9y ago
  Does anyone believe in the straw form of the EMH? Not I, surely. Standard weak form suffices to imply that nobody should be showing an ML-derived chart showing an expected tripling of price.

fnbr 9y ago

It's almost impossible, for two reasons: 1) It's incredibly difficult to create strategies that work because there are thousands of highly trained, highly paid people working to create strategies. 2) Any strategy that you do create will self-correct over time and become useless, as strategies find examples where the market has misjudged prices; by exploiting the strategy, the market should, over time, stop misjudging the prices. The "EMH" that the parent is referring to is the Efficient Market Hypothesis, which states that the market price is the "correct" price, and that it is impossible to predict a better price, as the current price incorporates all possible information. I, personally, don't subscribe to that version of the EMH; I believe the one implied by 1), which is that it's difficult to compete with the thousands of math PhDs working on Wall Street.

panarky 9y ago
> It's almost impossible ... You'd think so, and yet ML is transforming investment and trading strategies. From The Economist: Castle Ridge Asset Management, a Toronto-based upstart, has achieved annual average returns of 32% since its founding in 2013. It uses a sophisticated machine-learning system, like those used to model evolutionary biology, to make investment decisions. It is so sensitive, claims the firm’s chief executive, Adrian de Valois-Franklin, that it picked up 24 acquisitions before they were even announced. Source: http://www.economist.com/news/finance-and-economics/21722685-fields-trading-credit-assessment-fraud-prevention-machine-learning http://www.economist.com/news/finance-and-economics/21722685...
Eliezer 9y ago
Does anyone believe in the straw form of the EMH? Not I, surely. Standard weak form suffices to imply that nobody should be showing an ML-derived chart showing an expected tripling of price.