Hi there, A.Lo is indeed a 'financial engineer' @MIT (http://web.mit.edu/alo/www/). He doubts that 'econophysicists' discovered smth substantially new, and so do I. People studying the data in question knew about 'fat' tails in distribution of returns for ages. Markets are obviously not 'efficient', how they can be if a market cap of large companies can change over 50% is a matter of months? However, I have surely not implied that TA can 'predict' them (you should specify what 'predict' means). On the other hand, statistics of the data and forecasting are legitimate empirical methods applied to 'quantify' finance. The insurance and mortgage cos do not use TA, they use 'econometrics', they do not use MACD, they use band-pass filters, MAs in forms of ARMA and ARIMA, and datamining/forecasting with neural nets, etc. Whether all this constitutes 'science' is open for debate (http://minneapolisfed.org/pubs/region/00-12/review.cfm). For instance, it is a result with high statistical probability that the global warming is linearly linked to the number of pirates (http://www.venganza.org/). And with neural nets I can easily fit my own signature, so tools should be used within reason. In any case, what we have is empirical datasets, and one should make ones best to optimize odds via statistical analysis (which you may call TA) in common situation with limited information. In this, FA just adds another datastream. The _hypothesis_ is that one can estimate ones odds of a given method of investing, timeframe, and instrument used with some method of forecasting/extrapolation. If it is 'better' than fixed income, you may use it, otherwise you must not (Sharpe:: http://www.stanford.edu/~wfsharpe/art/art.htm). Forecasting usually works better for the past than for the future (N.Bohr), and yet one is better off using it than listening to gurus who always know where the market will be tomorrow, or using some magic blackboxed 'indicator' of the same. We're talking about probabilities, and even if the estimated probability of the event is zero, it may happen. Therefore, I would be in the learning camp.
PS. As for 'econophysics', I do not think it's a good term, but talking about random matrix theories, turbulence, and replica methods may certainly help those folks to collect consultance fees. --- In [email protected], "loveyourenemynow" <[EMAIL PROTECTED]> wrote: > > Hi Alex, > > thank for the interesting link. > Not random walk just means that models based on the random walk > hypothesis (gaussian distribution of the stochastic component) are not > accurate. It does not mean technical analysis is successfully > predicting market evolution, but that other models (not random walk, > not necessarily and I would add quite likely not technical analysis) > can be more successful. > By the way the two authors are not Princeton Professors (MIT,Pennstate > I think), and are not physicist but economists , and looking at the > Nature article you link to, they do not seem to like econophysics that > much ... > Econophysics papers are freely available on http://xxx.lanl.gov, but i > guess economist do not even read them, I personally like them > > Thanks > > Ly >
