Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: Moominoid who wrote (148257)	2/5/2002 7:31:22 PM
From: Real Man	Read Replies (1) \| Respond to of 436258

I'm not sure if it's in the classic Hull's book (J C Hull - Futures, Options and Other Derivatives), but here is one. J-P. Bouchaud and M. Potters, Theory of Financial Risks (Cambridge University Press, 2001) Beware: it's written by Theoretical Physics Ph.Ds, so some heavy math is involved In brief - if a drunk man travels n steps, (say, take n as the number of market "days" for a drunk stock like IBM) he will travel, on average, Sqrt(n) distance, assuming "efficient" (gaussian) market, and n^H, where H is the Hurst exponent, in case of non-gaussian fluctuations with Hurst exponent H. H=1/2 means ordinary diffusion (drunk man) Gaussian process, or efficient market. Typically for the market H>1/2 (say, 0.6-0.7) So in general fluctuations tend to take the drunk guy further than they ordinarily would, which means a trend. Sorry about the late reply - Just didn't have the references Handy "Fat tails", or crashes, still occur very rarely, so that the Fed could "doctor" them for a while. But they do occur nevertheless, and it's a normal market.