Posts filed under “Quantitative”

Markets are Efficient If (and Only If) P = NP

An NYU Poly Department of Finance and Risk Engineering professor has a forthcoming paper in Algorithmic Finance that claims that “Markets are efficient if and only if P = NP.”

Why is this important? Most economists think markets are at least weakly efficient (I disagree).

Computer scientists think that P != NP — that current prices fully reflect all information available in past prices.

This paper claims they both cannot be correct; one must be incorrect. The author’s proof is that they both cannot be correct at the same time, and therefore one must be wrong.



I prove that if markets are efficient, meaning current prices fully reflect all information available in past prices, then P = NP, meaning every computational problem whose solution can be verified in polynomial time can also be solved in polynomial time. I also prove the converse by showing how we can “program” the market to solve NP-complete problems. Since P probably does not equal NP, markets are probably not efficient. Specifically, markets become increasingly inefficient as the time series lengthens or becomes more frequent. An illustration by way of partitioning the excess returns to momentum strategies based on data availability confirms this prediction.

Category: Quantitative, Think Tank

What Does Inflation Say About Risk On/Off?

click for larger chart > Michael Gayed observes: “When the TIP/IEF price ratio (Inflation-Protection/Nominal-No-Inflation-Protection) trends higher, it means bond market is swinging towards increased inflation expectations. When the ratio is trending down, bond market is favoring deflation through outperformance of Nominal bonds. Inflation hedge tends to be equities: risk-on. Deflation hedge tends to be nominal…Read More

Category: Inflation, Quantitative, Trading

How Algorithms Shape Our World

Kevin Slavin argues that we’re living in a world designed for — and increasingly controlled by — algorithms. In this riveting talk from TEDGlobal, he shows how these complex computer programs determine: espionage tactics, stock prices, movie scripts, and architecture. And he warns that we are writing code we can’t understand, with implications we can’t control

Hat tip Flowing Data

Category: Mathematics, Quantitative, Video

FusionIQ Redesign & Free T/A Stock Screens

We’ve been doing a lot of behind the scenes tweaks to FusionIQ, and there are some wicked cool features coming in the fall. Meanwhile, the redesigned home page is up — its much lighter, cleaner, and easier to read. We are bringing the same critical eye to the redesign of the interior as well. I…Read More

Category: Quantitative, Web/Tech

Markets Down 6 Weeks Consecutively (and that means…)

History may not repeat, but it often rhymes. This table, assembled by Ron Griess of The Chart Store, shows what markets have done over the past century following any stretch of down 6 consecutive weeks. The data reads both binary and inconclusive: If the markets are merely oversold, then you get a nice snapback, and…Read More

Category: Markets, Quantitative

Financials as Percentage of S&P500 Market Cap

Earlier this week, we looked at the impact the financials had on the S&P. Today, I want to bring two charts to your attention that might give you some pause. The first is from Ron Griess (The Chart Store), showing NYSE market cap as a percentage of GDP. It indirectly relates  stock prices and valuation…Read More

Category: Economy, Markets, Quantitative, Technical Analysis, Valuation

ECRI: Global Slowdown to Hit by Summer


Global Slowdown to Hit by Summer, Even for U.S., Says Achuthan
Stacy Curtin
Yahoo Daily Ticker

Category: Cycles, Economy, Quantitative, Video

First Three Days in May

The equity market has made a little bit history in the first three days in May.  Only four other times in the last fifty years has the S&p500 opened May with three consecutive down days. Bespoke did some great work yesterday analyzing the first two consecutive down days in the new month and we thought we’d add…Read More

Category: Investing, Markets, Quantitative

Birthdays and Investment Risk

Birthdays and Investment Risk By John Mauldin April 4, 2011 > “Tail risk (the risk of large losses) is dramatically underestimated by many investors and the tools we have available to manage such risks are hopelessly inadequate. Financial theory which is taught at business schools and universities all over the world is plainly wrong.” This…Read More

Category: Investing, Philosophy, Quantitative, Think Tank

Soc Gen’s Economic Surprise Indicator

Alain Bokobza of the Société Générale Quant team, writes that their “Economic surprise indicator” suggests risky assets are now technically vulnerable: “After undergoing a massive rally since last September, risky assets are now technically vulnerable: SG Quant sentiment indicator is close to an all-time high, economic revisions have rarely such a high percentage of upgrades,…Read More

Category: Markets, Quantitative, Technical Analysis