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Which financial model actually works in the real world? A lot of what is studied seems to be nonsense from more than 60 years ago, because computers and algorit

Which financial model actually works in the real world? A lot of what is studied seems to be nonsense from more than 60 years ago, because computers and algorithmic thinking started to come into vogue in economics research. The same can be stated about Markowitz portfolio optimization, a product of hype in the operations research space at the time. It obviously doesn't work because portfolio optimization isn't a simple convex optimization problem in the real world. Yet anyone who studies finance is forced to learn it and other empirically failed bullshit.

pixelpoet 7y ago
> Yet anyone who studies finance is forced to learn it and other empirically failed bullshit. By that measure we'd better stop learning and teaching Newtonian gravity, too.
- codesushi42 7y ago
  Huh? That's a terrible example, gravity is easily observable here on Earth, hence why the theory was formulated using empirical experiments. Way to find an example that supports my point.
  - pixelpoet 7y ago
    Newtonian gravity is empirically wrong. sigh
    - codesushi42 7y ago
      That's not the same. It has held up quite well, wouldn't you agree? A lot of financial models have never, ever worked in any sense when put to use in real markets. It is completely different. These are mathematical models predicting the outcome of complex systems, not physical laws that are observable in every day life (even if the intuition can be wrong, only work above the subatomic level etc). There's no "unifying theory" to uncover. A lot of the research is just plain garbage. Otherwise it would be easy to become wealthy through pure academic pursuit, wouldn't you agree? But markets don't work that way, and these theories can be easily tested and fail every time.
    - pinkfoot 7y ago
      Nope. If you take the time to read Newton, you will discover he never wrote F=ma. His formula was equivalent to F=dmv/dt. That is to say, he anticipated the force to be a function of the mass.
- pinkfoot 7y ago
  Newtonian gravity put men on the moon.

pixelpoet 7y ago

> Yet anyone who studies finance is forced to learn it and other empirically failed bullshit. By that measure we'd better stop learning and teaching Newtonian gravity, too.

codesushi42 7y ago
Huh? That's a terrible example, gravity is easily observable here on Earth, hence why the theory was formulated using empirical experiments. Way to find an example that supports my point.
- pixelpoet 7y ago
  Newtonian gravity is empirically wrong. sigh
  - codesushi42 7y ago
    That's not the same. It has held up quite well, wouldn't you agree? A lot of financial models have never, ever worked in any sense when put to use in real markets. It is completely different. These are mathematical models predicting the outcome of complex systems, not physical laws that are observable in every day life (even if the intuition can be wrong, only work above the subatomic level etc). There's no "unifying theory" to uncover. A lot of the research is just plain garbage. Otherwise it would be easy to become wealthy through pure academic pursuit, wouldn't you agree? But markets don't work that way, and these theories can be easily tested and fail every time.
  - pinkfoot 7y ago
    Nope. If you take the time to read Newton, you will discover he never wrote F=ma. His formula was equivalent to F=dmv/dt. That is to say, he anticipated the force to be a function of the mass.
pinkfoot 7y ago
Newtonian gravity put men on the moon.