This video relies on several false assumptions. The efficient market hypothesis has nothing to do with volatility, but rather it states all the available information is already priced in the stock. That is to say, if, for instance, the future growth of a company depends on the price of money, the current price of the stock will reflect the current interest rate and the best guess of near future rate changes.
@@mickkorrawit2386It's hard to tell because the thesis of the video is very muddled. Either way, the EMH and random walks are two concepts largely independent of each other. Either can be true with the other being false.
@@mickkorrawit2386for what I can tell, he seems to think changes in volatility mean you can't have a random walk, or the markets aren't efficient, neither of which is true. Peaks in volatility just mean the markets move more the days there are news to make them move.. And random walks don't require all steps to be of equal size. You can build a random walk out of any sequence of random variables, as long as their expectation is zero, as per the central limit theorem.
7:17 Do you think it's possible to time (see it coming) the 'volatility clustering' for something that doesn't walkes randomly but rather predictably and is kinda range bound, and the questions about this something are not 'if' or the 'direction' but ONLY 'when' . Thank you in advance.
I think that was an idea that Mandelbrot was exploring, a bit like picking when a storm is coming, so your suggestion is in great company! I've played around with that myself - you can definitely see markets becoming volatile when participants don't know which way it will go. I'm not sure that would be range bound, but it stands to reason that the more volatile, the less clear trend you might see. I've also seen a journal paper that talks about whether volatility increases are a precursor to a crash - it concluded there might be a small correlation, but again when I tried this, it's not very helpful. I do think it's useful though to understand when the market is more volatile than it usually is - it's a sign of uncertainty, and potential big movement.
@fractalmanhattan If you take a closer look at the VIX chart, you gonna be surprised how 'predictable' its behavior is in general. The fractal in it looks like a typical "chart of a heartbeat" often represented by an electrocardiogram (ECG). The only 2 unknowns are: WHEN vix is going to spike (above 25) and how HIGH. If there's a way to 'see' these big spikes coming in order to avoid them - the 'short vix' trade (using ZVOL and SVOL) becomes unbelievably profitable.
Problem is that clustered volatility can't help you predict future price changes. Also, pleople who believe in random walks and EMH know that the market isn't 100% random, otherwise something like the medallion fund wouldn't exist. Also the smaller the traded stock is, the less efficient the market becomes and therefore also less random. But also: The problem is, the less random a stock is, the more traders want to profit, making it more traded and therefore less random in return. The only constant in the stock market is that a well diversified portfolio goes up over time. The more ou try to profit from the volatility, the more it becomes a zero sum game, as in a trade, someone loses and the other wins.
Thanks, and definitely agree with your comments, and I like that they highlight that reality is more complex than the theory. Understanding volatility and the chaotic nature of markets I believe does help better understand markets and what to expect from them. I'm not necessarily trying to infer one thing or another - viewers can take out of this what you have - that essentially markets are still unpredictable, even if there is temporal clustering of volatility. If you wait long enough, it's difficult to disagree that some kind of diversified enough portfolio will go up, but I think there is a lot of room to explore around the requirements for that - all stock indices might eventually go up, but what about the stocks that make them up? Should you never buy individual stocks? How diversified do you need to be, and what's the impact on returns of that? Do you need to be internationally diversified (i.e. how true is this for any stock market)? How long do you have to wait (does this depend on nation - look at Japan)? How might this evolve through different periods in history (are we just in an exceptional time which is skewing returns higher)? How long to recover if a major slump comes? What do you do if you are approaching retirement? What's the effect on markets of participants just buying to match indices rather than on value? Lots of questions which I think are interesting to consider, and for which chaos theory provides some guide. Thanks again!
@feds Markets are not efficient but effective markets are effective as over time needs and concerns of different participants(sellers and buyers) are met,so we can say the market is not random but if one can understand the conditions of the market they can place themselves at a better risk exposure as risk can't be avoided so markets are not random or efficient but effective as price change is due the concerns and needs of participants being met and not met,this is where supply and demand model comes in and supply and demand doesn't promise predictability but forces one to be in the" Right Now" as the right Now allows you to decipher the ongoing conditions or actions at that price-time relationship Hence one can't use Price to predict price,what I mean by using price to predict price I mean the use of TA-technical analysis so TA AND FA ARE BAD TOOOLS TO GET TRADES
@@fractalmanhattan i see . Honestly I never liked the idea of buying index and hold . Nikkei 225 proved that already. But buying an index for the sake of saving and not for investing. Meaning you don't care if you make money or not. What you care about is your asset to be correlated with the economic. You will simply avarage down your expectation . There is no way other businesses will be doing better during market crushes at least most of businesses.
@fractalmanhattan 😁 trully random independant steps 😂 I have a question sir, how can it be used consistently to predict markets when the base of this model is randomness + independance of each event, wouldn't its results differ drastically from simulation to simulation (though the distribution is the same) because of that ?
Yes indeed you are correct- random walks can simulate some aspects of real markets but are too simple as a model to capture everything. But if you assume a random walk then the probability distribution of many such simulations is a normal distribution, which is why people like this model
You still cannot predict real markets. Both real and fake charts are functionally the exact same. The fundamentals that drive real price, and an RNG algorithm produce the same thing. Both are unpredictable.
Not true, what is even ”fake charts” whatever drives price, they move in cycles and are all different, some are fundamental cycles like financial crisis/crashes, but these cycles produce something called ”self simliarity” but can’t be predicted perfectly as obvious
Market price is a measure of perceived scarcity of product now and in the future. Clearly there are going to be both "random" (from the market participant's perspective) and deterministic factors for that: known seasonal fluctuations, rumors of upcoming news, localized buying due to shortages, etc. The question is not whether markets can be predicted, but to what degree of certainty *by a particular agent given his knowledge about the market at that moment*. You need to think like a statistician and accept that there will never be a 100% solution for any market participant since no participant is ever in possession of 100% of the facts.
@@SimpleFluorescenceexactly right. Markets are evidently predictable to a certain extent otherwise trading would not exist. But an edge should always be viewed from a statistical point of view otherwise it is easy to get caught up in thinking there is some methodology to perfectly explain all swings in price.
EMH and random walks is clearly nonsense and yet it must be promoted, since to say otherwise, would allow traders to enter into the correct belief systems so they could start on the correct path to decode what they see on the charts. And those that do uncover the truth such as the Medallion fund creators keep it to themselves and reap all the benefits.
Has anyone here ever considered the stock market is just a simulation of a stock market. Where prices are essentially controlled. That the closing price of each bar is not really based on auction theory or supply and demand dynamics. That the closing price of the day is set by the auctioneers each day for all stocks. That price action is just an illusion?? Or is everybody here just drinking the Kool Aid?
Prof Andrew Lo of MIT wrote a paper in the 90s that shows how wrong the Random Walk & Efficient Market Hypothesis are... Saying the pricing of these assets is Independent is where the problem begins...
![Seungmin "그렇게, 천천히, 우리(As we are)" | [Stray Kids : SKZ-PLAYER]](http://i.ytimg.com/vi/kAzmhLHePqU/mqdefault.jpg)
Excellent as usual. Excited for the next one!
Thanks Brumor - super appreciate your support!
Please keep posting your research
Thank you - appreciate your encouragement!
From my market technician perspective, this is awesome.
Thanks kareim27 - glad it had some value for you!
This video relies on several false assumptions.
The efficient market hypothesis has nothing to do with volatility, but rather it states all the available information is already priced in the stock. That is to say, if, for instance, the future growth of a company depends on the price of money, the current price of the stock will reflect the current interest rate and the best guess of near future rate changes.
So you're telling that EMH can be satistified without random walks proven. But this video proved random walk hypothesis is wrong. Am I correct?
@@mickkorrawit2386It's hard to tell because the thesis of the video is very muddled.
Either way, the EMH and random walks are two concepts largely independent of each other. Either can be true with the other being false.
@@mickkorrawit2386for what I can tell, he seems to think changes in volatility mean you can't have a random walk, or the markets aren't efficient, neither of which is true.
Peaks in volatility just mean the markets move more the days there are news to make them move..
And random walks don't require all steps to be of equal size. You can build a random walk out of any sequence of random variables, as long as their expectation is zero, as per the central limit theorem.
@@mickkorrawit2386that's not to say markets are actually efficient, just that his argument is bad.
@@KilgoreTroutAsf Crystal clear
Thank you. Great content, great channel. Nice and clear
Much appreciated!
7:17 Do you think it's possible to time (see it coming) the 'volatility clustering' for something that doesn't walkes randomly but rather predictably and is kinda range bound, and the questions about this something are not 'if' or the 'direction' but ONLY 'when' .
Thank you in advance.
I think that was an idea that Mandelbrot was exploring, a bit like picking when a storm is coming, so your suggestion is in great company! I've played around with that myself - you can definitely see markets becoming volatile when participants don't know which way it will go. I'm not sure that would be range bound, but it stands to reason that the more volatile, the less clear trend you might see. I've also seen a journal paper that talks about whether volatility increases are a precursor to a crash - it concluded there might be a small correlation, but again when I tried this, it's not very helpful. I do think it's useful though to understand when the market is more volatile than it usually is - it's a sign of uncertainty, and potential big movement.
@fractalmanhattan
If you take a closer look at the VIX chart, you gonna be surprised how 'predictable' its behavior is in general. The fractal in it looks like a typical "chart of a heartbeat" often represented by an electrocardiogram (ECG). The only 2 unknowns are: WHEN vix is going to spike (above 25) and how HIGH. If there's a way to 'see' these big spikes coming in order to avoid them - the 'short vix' trade (using ZVOL and SVOL) becomes unbelievably profitable.
I completely agree @@ivantsanov3650 !
@fractalmanhattan
I have a suggestion.
Can we combine efforts to solve the riddle ?
Problem is that clustered volatility can't help you predict future price changes.
Also, pleople who believe in random walks and EMH know that the market isn't 100% random, otherwise something like the medallion fund wouldn't exist. Also the smaller the traded stock is, the less efficient the market becomes and therefore also less random. But also: The problem is, the less random a stock is, the more traders want to profit, making it more traded and therefore less random in return.
The only constant in the stock market is that a well diversified portfolio goes up over time. The more ou try to profit from the volatility, the more it becomes a zero sum game, as in a trade, someone loses and the other wins.
Thanks, and definitely agree with your comments, and I like that they highlight that reality is more complex than the theory. Understanding volatility and the chaotic nature of markets I believe does help better understand markets and what to expect from them. I'm not necessarily trying to infer one thing or another - viewers can take out of this what you have - that essentially markets are still unpredictable, even if there is temporal clustering of volatility. If you wait long enough, it's difficult to disagree that some kind of diversified enough portfolio will go up, but I think there is a lot of room to explore around the requirements for that - all stock indices might eventually go up, but what about the stocks that make them up? Should you never buy individual stocks? How diversified do you need to be, and what's the impact on returns of that? Do you need to be internationally diversified (i.e. how true is this for any stock market)? How long do you have to wait (does this depend on nation - look at Japan)? How might this evolve through different periods in history (are we just in an exceptional time which is skewing returns higher)? How long to recover if a major slump comes? What do you do if you are approaching retirement? What's the effect on markets of participants just buying to match indices rather than on value? Lots of questions which I think are interesting to consider, and for which chaos theory provides some guide. Thanks again!
@feds
Markets are not efficient but effective
markets are effective as over time needs and concerns of different participants(sellers and buyers) are met,so we can say the market is not random but if one can understand the conditions of the market they can place themselves at a better risk exposure as risk can't be avoided so markets are not random or efficient but effective as price change is due the concerns and needs of participants being met and not met,this is where supply and demand model comes in and supply and demand doesn't promise predictability but forces one to be in the" Right Now" as the right Now allows you to decipher the ongoing conditions or actions at that price-time relationship
Hence one can't use Price to predict price,what I mean by using price to predict price I mean the use of TA-technical analysis so TA AND FA ARE BAD TOOOLS TO GET TRADES
@@fractalmanhattan i see . Honestly I never liked the idea of buying index and hold .
Nikkei 225 proved that already.
But buying an index for the sake of saving and not for investing. Meaning you don't care if you make money or not. What you care about is your asset to be correlated with the economic.
You will simply avarage down your expectation . There is no way other businesses will be doing better during market crushes at least most of businesses.
Thanks @@paulnyagini
Wow🎉
Just superb! Thank you!
Thanks! Glad you enjoyed it
Great content, subscribed.
Thank you!
这个视频好啊，回答了我心中的疑问。那应该用什么样的模型替代呢。很想和你交流一下。
Thank you!
Random walks theory alone is like trying to guess where you need to go when you're in a place you don't know at all.
Lol
@fractalmanhattan 😁 trully random independant steps 😂 I have a question sir, how can it be used consistently to predict markets when the base of this model is randomness + independance of each event, wouldn't its results differ drastically from simulation to simulation (though the distribution is the same) because of that ?
Yes indeed you are correct- random walks can simulate some aspects of real markets but are too simple as a model to capture everything. But if you assume a random walk then the probability distribution of many such simulations is a normal distribution, which is why people like this model
good prez!
Thank you!!
Can I contact you?
Hi - I haven't set up a contact for this channel yet, as it's still largely a hobby project. What did you want to ask?
I want to exchange information about fractals
@@fractalmanhattanI want to exchange information about fractals
Okay thanks - I'll try to add a contact soon. Please feel free to use the chat to post any ideas or questions in the meantime :)
5:10 volatility
u a finance major?
No physics - chaos, fractals and complexity theory
You still cannot predict real markets. Both real and fake charts are functionally the exact same. The fundamentals that drive real price, and an RNG algorithm produce the same thing. Both are unpredictable.
Not true, what is even ”fake charts” whatever drives price, they move in cycles and are all different, some are fundamental cycles like financial crisis/crashes, but these cycles produce something called ”self simliarity” but can’t be predicted perfectly as obvious
Market price is a measure of perceived scarcity of product now and in the future. Clearly there are going to be both "random" (from the market participant's perspective) and deterministic factors for that: known seasonal fluctuations, rumors of upcoming news, localized buying due to shortages, etc.
The question is not whether markets can be predicted, but to what degree of certainty *by a particular agent given his knowledge about the market at that moment*. You need to think like a statistician and accept that there will never be a 100% solution for any market participant since no participant is ever in possession of 100% of the facts.
@@SimpleFluorescenceexactly right. Markets are evidently predictable to a certain extent otherwise trading would not exist. But an edge should always be viewed from a statistical point of view otherwise it is easy to get caught up in thinking there is some methodology to perfectly explain all swings in price.
👍👍👍
EMH and random walks is clearly nonsense and yet it must be promoted, since to say otherwise, would allow traders to enter into the correct belief systems so they could start on the correct path to decode what they see on the charts. And those that do uncover the truth such as the Medallion fund creators keep it to themselves and reap all the benefits.
😂 then you should be able to be a billionaire by now.
If it takes the smartest people in the world to beat the markets, then you have no chance, bud.
Has anyone here ever considered the stock market is just a simulation of a stock market. Where prices are essentially controlled. That the closing price of each bar is not really based on auction theory or supply and demand dynamics. That the closing price of the day is set by the auctioneers each day for all stocks. That price action is just an illusion?? Or is everybody here just drinking the Kool Aid?
Yah Jim Simon’s stated multiple times prices exhibit a random walk. They don’t use charting, they use machine learning
@@dee23gaming The smartest people in the world are smart enough not to explain their true methods on youtube, lol.
Hi
You simply don't understand the deeper meaning and real usage of 'random walk & Efficient Market Hypothesi '.
Prof Andrew Lo of MIT wrote a paper in the 90s that shows how wrong the Random Walk & Efficient Market Hypothesis are... Saying the pricing of these assets is Independent is where the problem begins...