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For the sake of debate we could go on with the random/not random walk
theories from now until dooms day (which may not be all that long with "war
is in the air" **that's sung to the tune of "Love Is In The Air". However in
the interest of, "What's the final product we're after here?" Would I be
incorrect as to say, "a system that consistently produces profits with DD
that don't exceed the pucker factor"? That being the case there are at least
10 to 12 publicly known mechanical systems that have produced in excess of
an average 40% return (some as high as 150%)in the various futures markets
for the last 5 years plus (some as long as 10-12 years). So from the point
of view of a "workable truth", the truth is, some sections and assorted
parts of the market work consistently with the non-random walk theory. So
the "theory boys" should be looking for application instead of "theory for
the sake of theory", unless, of course, you're on a book tour selling your
book. I hear that has a pretty good return in and of itself.
Regards,
Michael M.
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Alex Matulich wrote:
>If you plot the probability density function of any market, you will
>find it's not gaussian. The distribution has a higher sharper peak,
>and fatter tails, than a gaussian distribution. Therefore markets
>are not random walks.
Marcus Jellinghaus wrote:
I think that you can construct random walks with a non-gaussian
distribution, for example a distribution around 0 with a sharper peak and
fatter tails. It is still part of the concept.
The concept of random walks is extended, for example to Brownian motion.
Since really new fundamental information influences prices, the market is
not random. But a lot of people say that the financial markets are efficient
according to the efficient market hypothesis (EMH). I think that the EMH is
the most elegant concept to say: "You can not earn money on financial
markets - there?s no free lunch". The EMH says:
"A capital market is said to be efficient if it fully and correctly reflects
all relevant information in determining security prices. Formally, the
market
is said to be efficient with respect to some information set ... if security
prices would be unaffected by revealing that information to all
participants.
Moreover, efficiency with respect to an information set ... implies that it
is
impossible to make economic profits by trading on basis of [that
informationset]."
(from Campell, Lo, McKinlay: "Econometrics of Financial Markets)
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