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An interesting post. I'd be interested hear what kind of background you've got. I think your remark on finance professors is quite wrong. It takes quite a lot

by rortian 16y ago

An interesting post. I'd be interested hear what kind of background you've got. I think your remark on finance professors is quite wrong. It takes quite a lot of dedication to do a Phd. I'm not great respecter of academic prestige, but its a bit insulting to imply that people fail their way into a professorship. I'd be more than happy to share some pointers on financial papers I've read and such. Just talk about your background and what you know. If you think 'a random walk down Wall Street' is correct, it isn't. Have you seen the derivation of Black-Scholes? Do you know what most high frequency trading is based on? I'd also be interested to see what type of stuff you like to read.

chasingsparks 16y ago
I didn't mean it in an insulting way. I'm actually starting a Masters/Ph.D. program in computational social sciences in the fall, hoping to fully immerse myself in an environment that also finds markets fascinating. I have derived Black-Scholes; I study market micro-structure; I read as much as I can on anything related to social systems from volatility surfaces in options pricing to more generic machine learning methods such as PSO. (I'd like to respond more, but I just noticed I am 20 minutes late for my fathers birthday party.)
- rortian 16y ago
  Cool, definitely get back to me. Kinda random but I am very interested in complex networks as well as some finance stuff.
cjy 16y ago
I don't think he was being insulting. He was just explaining that the incentives discourage anyone from publicly disproving the efficient market hypothesis.
- lars512 16y ago
  This is where it gets fun though. An inefficiency being found amounts to you knowing something about pricing that others don't. You exploit it for profit, and the process of exploiting it removes or reduces the inefficiency. The only way the market is truly screwed is if consistent arbitrage opportunities become available, but the kinds of inefficiencies people find seem more transient than consistent. On another note, betting markets are (or were) apparently far less efficient than financial markets, in that the true likelihood of a team/horse/camel winning in a competition may be different to the money which punters are willing to bet on it. I know of a guy who made his fortune after many gruelling years by finally coming up with prediction models which worked in these kind of gambling scenarios.
fernando 16y ago
Could you elaborate on this? In which ways is "a random" walk incorrect? In what is high frequency trading based?
- rortian 16y ago
  On the last question give me a little time to look up a paper. I'll post it. Essential it shows how the strategy of most long-short hedge funds work. I'd have to look again, but one of the major high frequency strategies uses a version of this. I'd love to read it, but the easiest way to answer your second question is to point you to 'A non random walk down wall street.' One huge assumption that Black-Scholes makes is that returns are normal distributed. This is not done for empirical reasons rather mathematical ones, namely it is so convenient. Edit: Pdf http://www.newyorkfed.org/research/conference/2007/liquidity/Khandani_Lo.pdf http://www.newyorkfed.org/research/conference/2007/liquidity... Some meta data and such if you don't feel like going with a pdf: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1015987 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1015987

by rortian 16y ago

chasingsparks 16y ago

I didn't mean it in an insulting way. I'm actually starting a Masters/Ph.D. program in computational social sciences in the fall, hoping to fully immerse myself in an environment that also finds markets fascinating. I have derived Black-Scholes; I study market micro-structure; I read as much as I can on anything related to social systems from volatility surfaces in options pricing to more generic machine learning methods such as PSO. (I'd like to respond more, but I just noticed I am 20 minutes late for my fathers birthday party.)

rortian 16y ago
Cool, definitely get back to me. Kinda random but I am very interested in complex networks as well as some finance stuff.

cjy 16y ago

I don't think he was being insulting. He was just explaining that the incentives discourage anyone from publicly disproving the efficient market hypothesis.

lars512 16y ago
This is where it gets fun though. An inefficiency being found amounts to you knowing something about pricing that others don't. You exploit it for profit, and the process of exploiting it removes or reduces the inefficiency. The only way the market is truly screwed is if consistent arbitrage opportunities become available, but the kinds of inefficiencies people find seem more transient than consistent. On another note, betting markets are (or were) apparently far less efficient than financial markets, in that the true likelihood of a team/horse/camel winning in a competition may be different to the money which punters are willing to bet on it. I know of a guy who made his fortune after many gruelling years by finally coming up with prediction models which worked in these kind of gambling scenarios.

fernando 16y ago

Could you elaborate on this? In which ways is "a random" walk incorrect? In what is high frequency trading based?

rortian 16y ago
On the last question give me a little time to look up a paper. I'll post it. Essential it shows how the strategy of most long-short hedge funds work. I'd have to look again, but one of the major high frequency strategies uses a version of this. I'd love to read it, but the easiest way to answer your second question is to point you to 'A non random walk down wall street.' One huge assumption that Black-Scholes makes is that returns are normal distributed. This is not done for empirical reasons rather mathematical ones, namely it is so convenient. Edit: Pdf http://www.newyorkfed.org/research/conference/2007/liquidity/Khandani_Lo.pdf http://www.newyorkfed.org/research/conference/2007/liquidity... Some meta data and such if you don't feel like going with a pdf: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1015987 http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1015987