Algorithms Prove No Match For Market Tumble
from the all-in-the-data dept
Earlier this year, famed inventor (among other things) Ray Kurzweil announced that he was getting set to launch a new investment company that would employ advanced mathematical techniques to discern patterns in the stock market. Of course, just because Kurzweil is widely considered to be a genius, it doesn't mean he'd have any midas touch when it comes to the stock market. Furthermore, quant funds, as they're known, aren't novel. Lately, in fact, they've been getting slaughtered as the market swings about in unpredictable ways. Top tier investment bank Goldman Sachs has announced that its closing one of its premier quant funds in light of recent losses. Obviously computers have become an indispensable tools in modern day investing, but no algorithm or mathematical genius can guarantee good performance in all markets.
Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.
Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.
While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.
–The Techdirt Team
Reader Comments
Subscribe: RSS
View by: Time | Thread
[ link to this | view in chronology ]
Re:
[ link to this | view in chronology ]
Mathematical Geniuses are rubbish investors
On the other hand, just because one algorithm is bad, it doesn't mean all algorithms are bad.
[ link to this | view in chronology ]
Black and BS ..
Of course if the market only used the same data as the quant funds then the predictions would be .. predictable. What they should do is outlaw people reading newspapers or web articles, like this one.
In case anyone don't realise it by now, noone can predict the future not even our current version of the priesthood in white, scientists. You can't predict the future from past events as the future is unpredictable.
A financial mag here one did a test, they set up a fund manager and amonkey with a pin to 'invest' in a protfolio for a set period. The monkey won !!!
Might as well wave a dead chicken at it. ( Slaughter me a calf and examine the entrails therein that I may place a put option .. :)
[ link to this | view in chronology ]
[ link to this | view in chronology ]
This just proves a point
It still is true that a great company can be forced to close because the stock market thinks they aren't good.
Maybe Chrysler has a chance now that they are privately held. They can look past the short term quarterly based goals of a public company.
[ link to this | view in chronology ]
The problem is in the details
While I agree that reading markets successfully can take some luck and gut feelings, cold hard algorithms could also do some good, as long as they assume the "right" things about markets. The problem is this: good math models necessarily include more complex assumptions (and so are tougher to analyze) to be more realistic. The key to a good algorithm is finding a trade-off in being realistic and being able to actually do something useful.
[ link to this | view in chronology ]
Re: The problem is in the details
I understand one of the problems LTCM got into was that the model assumed that the market would stay liquid at all times. This was the same assumption the portfolio insurance schemes made in 1987 - with the same result when the assumption turned out to be untrue.
[ link to this | view in chronology ]
It's a paradox (and so are my shoes)
Philosophically speaking, could the stock market benefit from such a model? Could such a model even exist, given that part of its existence is defined by what it defines itself? If Kurzweil is successful, will existence cease to be? Or, if his model is never used will the people who would have sworn by it instead be swearing by tea leaves as a stock market predictor?
Matt
[ link to this | view in chronology ]
Even his futurist predictions are highly criticized. In any case, these predictions are speculation and not scientific work, and predictions not withstanding his own technical merit, particularly in the field of AI, appears severely limited.
[ link to this | view in chronology ]
Re:
[ link to this | view in chronology ]
You can't predict the future...
[ link to this | view in chronology ]
Re: You can't predict the future...
[ link to this | view in chronology ]
Algorithmic Trading
StrataGenie is a new system which draws together the combined power of multiple computers over the internet to form a grid working to find trading strategies. The more people that join, the better the trading strategy. It's currently providing trading signals profiting about 60% per year, but it's expected to go higher over time. Forget about searching for aliens, let your computer turn a profit for you! www.stratagenie.com
While nobody can predict the future, you can actually predict the statistical likelihood of the stock prices over a short term. Using that knowledge, you can trade in and out while the market is behaving "normally". In the event of a rapid departure from normal, the unusual activity is seen as "volatility" and algorithms can react accordingly.
[ link to this | view in chronology ]