Predictable whether the market? Per aspera ad astra

As the stock market played an increasingly important role not only in economics but in politics and in social life, for him to become not only neposredstvennye members, but also people who do not have a direct relationship to the market. The bankruptcy of one of the first famous sad - the West Indian Company in France - and the stock collapsed late 20-ies of the last century, which began the Great Depression, did the stock market focus of the general population.

Therefore, the forecast situation, it is as a tool with an uncertain future is becoming increasingly important. This information could influence the political decision-making or lead to a wave of social upheaval. It is therefore not surprising that the issue of predictability of the market drew the attention of serious scientists. With his characteristic thoroughness and breadth of the question was raised: Does a predictable market, in principle? Classical period In the course of the discussion about this at the outset had a strong influence of the known physics of Brownian motion and the central limit theorem. Broun English physicist, discovered a remarkable phenomenon: if the smallest crumb colors placed in a liquid, it does not remain in place and begins to move randomly, and the traffic melts with increasing temperature. An explanation was requested as follows: the liquid is composed of invisible eye, small particles, which are in continuous motion. We can not watch it because of the size of the particles, but we see the movement of small particles of paint, resulting from millions of collisions between its particles and liquid. Since the particles in a liquid are moving independently of each other, the number of very large and they are all the same, collision occurring by chance, and the total transferred momentum is also a random variable, distributions, because the central limit theorem, the normal law.

This explanation does not predict accurately the movement of a specific particle, but provides an opportunity to obtain statistical estimates of its trajectory by finding the mean and variance of displacement on the initial position. As outlined reasoning proved effective in molecular physics, an attempt was made to use them to explain the dynamics of the stock market. Test particle is a particular asset or market index, the location of one-dimensional motion - its price, the particles of liquid - market participants. As a consequence - the price is a random walk, which is a Brownian motion. Fig. 1-a. The real historical series. Fig. 1-b. Artificial time series. External похожесть real historical data and synthetic time series, modeled in the framework of the assumptions made (Fig. 1-A and 1-b), the researchers determined the confidence in the explanation of price movements and gave rise to efficient markets hypothesis. If the transfer requirements, where applicable unit of Brownian motion, with the mathematical language at home, receive the following: - Market participants must operate independently of each other; - The number of bidders for each asset must be extremely high; - The asset should be freely pokpatsya and sold in any quantity (have infinite liquidity); - All participants must have the same investment horizon; - They must all have the same information about the asset; - Everything must immediately act on this information; - Reaction to new information must be rational (in the negative information you need to sell, with the positive - to buy). The above assumptions are called - the efficient market hypothesis (ERT), which was the theoretical foundation for a variety of constructions that are, among other things, and action-oriented. In the first years after the appearance of ERTs many thought that the question of predictability of the market received. In general, one could make a point, but ... The first beat anxiety practicing traders and financial managers. It turned out that the sharp rise in prices of assets are much more frequently than it should have a normal distribution. Since fluctuations occur and the greatest loss is predetermined interest . But to find a solution within the framework of the ERT is not possible. In addition, there are other issues concerning the validity of assumptions inherent in the hypothesis. For example, the assumption about the identity of information available. In this case, all market participants behave rationally - suppose sell shares. How then, under the hypothesis of rational behavior, takes the liquidity in the market? The hypothesis of the independence of market participants from one another also raises questions. Practice, for example, painfully familiar situation where traders have expected some movement of the market (eg, fall).

At this point, fairly small fluctuations in the price down to the market hit an avalanche of applications for sale. In such cases, the typical explanation for actions of market participants is as follows: There is a clear synergy (interaction) in the actions of traders. Another obvious question concerns the same time scale auction of market participants. Because the time horizon of players is different, so important for them to be different information. And, finally, whether the same information available to private investors and professional managers, specifically within the trading floor? A number of recent Nobel Prize given for the model market with asymmetric information to the contrary, as, however, and recent corporate scandals in the United States.