The results are extremely suspect under even a cursory examination. Their traders do not have realistic uncertainty, objectives, or incentives. They ignore the fact that the existence of liquidity/informed traders is partially dependent upon the existence of noise traders. I can't conceive that it would be published in a good journal. It is not currently published at all. I'm sure most academics wouldn't think much of it.
This paper reads like anti-daytrader propaganda... Any academics care to refute some of their points or their testing methodology? -Neo
Does a fast moving river move more water or more people...sorry for the "plain speak" but isn't this the essence of the matter?
I guess the fatal mistake of this paper is classifying all market participants in 2 black and white types: smart institutional fundamental contrarians and stupid retail trend following noise traders. The inevitable conclusion is that bubbles when they arise are created by the "noise traders". These guys have not proven anything, they have just built a model that justifies what academics wanted to hear all along, that they are not less intelligent than zillionaire traders and that non-fundamental traders are harmful to society. Seems like this kind of research is popular among academics, judging from the published articles in the references section. But reality is more complicated than their models. As a matter of fact, there are contrarian traders both technical and fundamental. And there are trend followers or should I say bubble followers of the fundamental, technical and simply herd-follower type. Supposedly kosher buy and hold/index benchmark institutions are obviously bubble friendly. If fundamental trading is so superior why so many economists were proclaiming "this time is different" at the top of the bubble in 2000. A better proposal to avoid bubbles should be removing restrictions to short selling and encouraging market liquidity and low transaction costs. That way any bubble-busting trader no matter if he is institutional, retail, fundamental, technical or whatever, will have better tools to fade the herd.
3 people to write such a simplistic paper. Short the quality of education in the US. Long the fees higher education will charge in the future.
LOL you're probably right, there are mathematically simpler approaches to profitably "model" the markets. But I was talking about their oversimplified ex post "explanation" of how market works. We as traders don't need to go too much into why our strategies work. We are happy as long as the cash register rings, but I personally try sometimes and it's not simple to me. Do we agree reality and their models are disconnected entities?
They should prosecute and sentence this academic, making him trade at one of Swifttrades many branches for a 1 year. It would at least shut him off and he might learn something useful to devote a new research paper on.
So how do they account for the terrible performance of mutual funds, which are unfailingly managed by CFA/MBA types who disdain timing and are bottom up stock pickers?
Could you imagine a world where academic ideas actually worked in the markets?? It is a self defeating principle - if there ever was an academically tested, working and accepted solution - everyone would eventually find out that solution and the game would change again, and again, and again.... that's the entire point, academics do not account for irrationality and we make money off it. You cannot solve an equation to produce and "irrationality quotient". Maybe that's why academics are so inept at trading markets - they do not believe something should be in a constant state of change. Mike