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Sebastian:
Given a problem (question), hypotheses are used to help differentiate between relevant and irrelevant info with respect to correlation or causality. The falsifiable requirement does not mean that the hypothesis is false but that it allows for the opportunity to be shown to be false.
Your Superbowl stuff is not a hypothesis. You could turn it into one by, for example, asking whether there is a correlation between who wins and market direction. Then a possible hypothesis regarding causality might be that the winning coach is granted power over all specialists on the NYSE floor and tells them each day whether to take the market up or down. Is that true or false? After designing an appropriate experiment you would come up with an answer that would prove or disprove the hypothesis. On the other hand, a non-falsifiable hypothesis for the same question might be that an ET on Mars transmits instructions to the specialists to take the market up or down depending on whether the AFL or NFL won. To the best of my knowledge, it is not presently possible to establish whether or not ETs exist on Mars or whether specialists have the receiving "gear" to get instructions from such an entity. As a result, this is not a falsifiable hypothesis and is sent to the round file.
Similarly, the 200 dma stuff is not a hypothesis but can be turned into one by asking an appropriate question and then creating a hypothesis. With respect to why prices rise or fall, one could look at current theories of price movement based on crowd psychology, formulate a question about the theory and then a hypothesis that will help answer the question.
Bill
----- Original Message -----
From: sebastiandanconia
To: amibroker@xxxxxxxxxxxxxxx
Sent: Saturday, October 28, 2006 1:53 PM
Subject: [amibroker] Re: OT: Statistics
Bill, I'm not sure what you mean by "falsifiable hypothesis", but would the Superbowl Indicator qualify?
Some basic background details at:
http://www.snopes.com/business/bank/superbowl.asp
Based purely on the historical "accuracy" rate this indicator is an excellent one, correct 80% of the time. Clearly there's no causal relationship between who wins the Superbowl and what the stock market does, but how could its "success" as a market indicator be disproven using only the historical data we used in testing?
That's the fundamental problem with testing only using numbers and not thinking about the "whys."
Now...what's the difference between the Superbowl Indicator and a 200-day moving average? If a stock crosses above a 200-day moving average it's widely assumed that this means the stock is in an uptrend. However, a 200-day ma applied to randomly-generated numbers can also show an "uptrend" when charted. Why is there a causal relatioship with one but not the other? Who says?:) Using only the historical data employed by testing, prove it.:)))
So, here we are...there's no way to either prove or disprove if the 200-day ma is a legitimate indicator or not. We know there's no causal relationship there, the stock isn't going up because the 200-day ma is going up, it's the other way around.
So what DOES make a stock going up? Whatever that "X" factor is, why not focus directly on that instead of something that might just be a meaningless mathematical coincidence?
Just trying to stimulate some thought about what we really know and what we don't really know. I don't have all the answers, either, I'm still trying to get rid of all the stuff I "know" that's wrong.:)
Luck,
Sebastian
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