Unpredictable market? Per aspera ad astra


- The asset should be freely bought and sold in any quantity (have infinite liquidity);

- All participants must have the same investment horizon;

- They should have the same information about the asset;

- All must respond immediately to this information;

- A reaction to the new information must be rational (if negative information to sell, with a positive - buy).

The above assumptions are called - Efficient Market Hypothesis (GER), which was the theoretical foundation for a variety of constructions, which have, in particular, and practical. In the first years after the GER many thought that the issue of predictability of the market received. In general, we could put an end, but ...

The first alarm was sounded practicing traders and money managers. It was found that sudden changes in asset prices are much more common than it should have from a normal distribution. Since at strong vibrations and the greatest losses occur, this predetermined interest <thick tail>. But to find a solution within the framework of the ERT failed.

In addition, there are other issues relating to the validity of the assumptions inherent in the hypothesis. For example, the assumption of the identity of the information available. In this case, all market participants behave rationally - let's sell shares. Where then, under the hypothesis of rational behavior, takes the liquidity in the market?

The hypothesis of the independence of market participants' behavior from one another also raises questions. Practices, for example, is painfully familiar with the situation, as traders watch out certain market movements (such as gravity). At this point, a fairly small price fluctuations down to the roof caved in on the market applications for sale.

In such cases, the typical explanation among market players is as follows: "I expect that the price will go down, and just then began to sell everything ... That's what I am, that time ...>. There is a clear synergy (interference) in the actions of traders.

Another obvious question is about the same time scale trading market participants. Due to the fact that the time horizon of the players are different, and meaningful to them will be different information.

And, finally, whether the same information is available to the private investor and the professional manager, directly located on the trading floor? Several recent Nobel prizes, granted in the market model with asymmetric information to the contrary, as, indeed, and recent corporate scandals in the U.S..

New wind

One of the events that led the researchers to go for a thorough revision of the hypothesis of a random walk in prices, the emergence of new physical concepts - deterministic chaos. It was found that noise-time series can be generated by a system in which there is no random element. The figure shows an example of a centered logistic map, which is the most simple example of deterministic chaos, and is expressed by the equation

Obvious visual similarity model range with the price chart of any real asset. In the figure you can see the weather in this sequence, performed by a neural network. Forecast carried by one point ahead.