I'm not sure if you're aware but volatility is actually proves efficiency. An inefficient market such as communism will have set prices that are either cheap or expensive to the curve. A volatile market shows continuous price discovery. Just because prices are swinging this way and that doesn't necessarily mean we aren't in equilibrium, there is a buyer for every seller, so price discovery has matched supply and demand at that point in time. Now, points towards market inefficnecy. Well, the most important one is gaps in hte market, caused by our 9:30 to 400 market. Another would be if Wall street insiders knew about public info before others, and were able to trade on that. There are others, but I think some people mis-interpret what efficiency really is, and it doesn't mean that markets are untradable if they are efficient, just that you have no more advantage than the guy sitting next to you.
>volatility is actually proves efficiency Interesting. What's the implication if volatility is in the situation (for several weeks): 1. Saturated in the extremes? 2. Saturated in the zero line? Proponents of inefficiency theory just need to illustrate that the nay-instances are not statistically insignficiant. Any pointers to such research publications would be appreciated.
academics, Soros, Random Walk and the scientific method What do they have in common? The academics of the western world have taught the masses to apply the scientific method to all fields of study including finance and economics. In my opinion the random walk theory represents the best explanation of how to apply the scientific method to the markets. Most intelligent people in the western world have a built in filter that eliminates most ideas that do not reaffirm what I call the "scientific consensus". This is why people come on here and talk about how hard it is to make it as a trader. Trading is very difficult if you apply the scientific method or even if most of your thinking is dominated by the filter of the "scientific consensus". Part of this consensus is the idea that if you "follow the established rules that I am smart enough to understand" or "I should just be able to break this down into a formula that will work again and again" that successes is a sort of a given. Soros made a very large fortune by applying a post-modern theory of how market participants perceptions effects the underlying "fundamentals" of the markets. He realized that dealing with markets is much more like dealing with a living creature than building a bridge. That is that the best of seeking truth is the market is to think of it as a large pot with thousands of variables all ever changing, and the best way to deal with it is in the most human of fashions. I have always felt this way about a number of things but I have latched on to Soros because he gives my feelings clarity and also he has been wildly successful. He helps me define what my "edge" is in the market. So to answer your question the "random walk" theory is one that will only lead you astray.
Thanks. I will try very hard to divorce my academic brain cells from my trading cells when I'm in the market. Just hope that I wouldn't end up losing my pants, heh. Hmmm, then again, may be good? if the AB cells will make friends with the T cells eventually. Your message is crystal clear to me. I'll check out Soros... http://en.wikipedia.org/wiki/George_Soros for a start. Ok, AB cells, it's time for you fellows to sleep...
Thinking the economystics (excluding rare exceptions like Lo) are scientific is a mistake. RWT is quintessential pseudoscience (specifically, begging the question).
The Speculator: 3 lessons from ace investor George Soros http://chinese-school.netfirms.com/articles/George-Soros-interview.html