> Hi Nicolas. Thanks and that's more or less where I am. I have an >article here from Chaitin based on the compression criterion for >randomness. He claims that financial time series are more or less ALL >random. 'Only one series in 1.000 can be compressed'. Meaning that in >practice you can find only 1 non-random time series in 1.000. I just >cannot believe this because if that's true what about technical >analysis ? So I am missing something ...
You make a good point, if this is true, then TA would be pointless. I would say it all depends on the timescale, at small timescales (1mn - 5mn) there are for sure recurrent patterns. The whole problem is to find ones that are tradable despite slippage and delays : ) > Anyway, you are saying that you did some testing on the NAS100 stocks with the Lempel-Ziv algorithm (?). Do you have any code for me or an URL where I can find it ? Unfortunately, I cannot give the code (part of a C++ library). You may implement one of the algorithms described in http://www.snl-e.salk.edu/publications/Kennel-2005.pdf The one on page 1571 (Kontoyiannis et al) is known to be good. Alternatively, you may export your time series to a txt file and compress it using gzip/pkzip. Then you do the same for a large number of random time series (1000) and compute the ratio of the size of the files (your_time_series/average_random_time_series), it will give you a rough idea about how far you are from randomness .. but never explain that to a physicist : ) (see for instance http://cscs.umich.edu/~crshalizi/notebooks/cep-gzip.html ) Regards, Nicolas
