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> What real math is involved in predicting the stock market? I have a MSC in Statistics, studied quantitative finance. Generally I'd agree with you. For genera
by MattyMc 4y ago
> What real math is involved in predicting the stock market?
I have a MSC in Statistics, studied quantitative finance. Generally I'd agree with you. For general investing there's often little math involved other than some simple ratios and comparisons. Three numbers I look at most often are the Price-to-Sales ratio, Gross Profit %, and annual revenue growth. There's no complex math involved here at all.
Where investing does get mathy is in calculating risk. When constructing a portfolio, generally the aim is to maximize returns while minimizing risk below some threshold. There is some very interesting and fun maths involved in this process that is beyond the scope of general investing.
- surfpel 4y ago> There is some very interesting and fun maths involved in this process that is beyond the scope of general investing. Are there some search terms or resources you would recommend looking into to learn more about this fun maths?
- FabHK 4y agoLook at the CAPM for the financial content, and mean-variance optimisation for the maths. It's basically minimising a quadratic function, but in many dimensions, with two constraints - the efficient frontier. You use Lagrange multipliers and arrive at a neat linear system. Lots of fun parabolas and hyperbolas :-)
- UnpossibleJim 4y agoAwesome! Thank you!
- scoofy 4y agoNassim Taleb's academic papers are all about the fun math of risk-management. He basically invented the barbell/butterfly strategy which is effectively a "normal distribution risk profile" to "students t distribution risk profile" arbitrage, where you are making a big bet that the market underestimates both the downside risk and upside rewards of equities in general. Very bizarre strategy, but really, really interesting.
- UnpossibleJim 4y agoAwesome! Thank you!
- UnpossibleJim 4y agoThank you, so much =)
- CuriousSpider 4y agoWould you be able to recommend any online resources or books on the more complex math? It sounds interesting.