Re:Insider trading has been rife on Wall Street, academics c...
by roenxi on Sunday February 11, 2018 @05:33PM
(#16355206)
> No, there is no guarantee. But you can develop an edge that is statistically distinguishable from random outcomes, and less formally, that distinguishes your activity from gambling.
Sure, it isn't gambling, but there are lies, damn lies and statistics. The effect of survivorship bias in this field is massive.
Consider that the random element isn't necessarily the stock performance over 12 months. The indicators the traders use are, in a sense, randomly determined by the trader's personality and knowledge. If the stock market operates in a deterministic fashion for, say, 10 year stretches (which I think is about the time between major recessions) then the rules get changed in a major way, this "statistically distinguishable" edge may well disappear taking a hypothetical small-time saver's retirement fund with it.
We see this every time there is a crash, where a bunch of firms with a clear statistical edge go bankrupt because the statistical edge relied on some specific market condition.
A lot of people make more money than me with clever deals, but at the end of the day the only strategy that everyone can follow simultaneously is creating more than they consume and stockpiling the excess. Maybe stockpile a little on the low side if they have faith in continuing benefits from technology growth outpacing population growth.
Sure, it isn't gambling, but there are lies, damn lies and statistics. The effect of survivorship bias in this field is massive.
Consider that the random element isn't necessarily the stock performance over 12 months. The indicators the traders use are, in a sense, randomly determined by the trader's personality and knowledge. If the stock market operates in a deterministic fashion for, say, 10 year stretches (which I think is about the time between major recessions) then the rules get changed in a major way, this "statistically distinguishable" edge may well disappear taking a hypothetical small-time saver's retirement fund with it.
We see this every time there is a crash, where a bunch of firms with a clear statistical edge go bankrupt because the statistical edge relied on some specific market condition.
A lot of people make more money than me with clever deals, but at the end of the day the only strategy that everyone can follow simultaneously is creating more than they consume and stockpiling the excess. Maybe stockpile a little on the low side if they have faith in continuing benefits from technology growth outpacing population growth.