An economist is an expert who will know tomorrow why the things he

”An economist is an expert who will know tomorrow why the things he predicted
yesterday didn’t happen today.”, Laurence J. Peter
”Le marché des options a prédit 9 des 5 krachs majeurs”, Samuelson
”options markets have predicted nine of the five major crashes”, Samuelson
”It was autumn, and the Red Indians on the remote reservation asked their New
Chief if the winter was going to be cold or mild. Since he was a Red Indian chief in
a modern society, he couldn’t tell what the weather was Going to be. Nevertheless, to
be on the safe side, he replied to his Tribe that the winter was indeed going to be cold
and that the members Of the village should collect wood to be prepared. But also being
a practical leader, after several days he got an idea. He Went to the phone booth, called
the National Weather Service and asked ”Is the coming winter going to be cold ?” ”It
looks like this winter is Going to be quite cold indeed,” the meteorologist at the weather
service Responded. So the Chief went back to his people and told them to collect even
more Wood. A week later, he called the National Weather Service again. ”Is it Going
to be a very cold winter ?” ”Yes,” the man at National Weather Service again replied,
”It’s definitely going to be a very cold winter.” The Chief again went back to his people
and ordered them to collect Every scrap of wood they could find. Two weeks later, he
called the National Weather Service again. ”Are you Absolutely sure that the winter
is going to be very cold ?” ”Absolutely,” The Man replied. ”It’s going to be one of the
coldest winters ever.” ”How can you be so sure ?” the Chief asked. The weatherman
replied, ”The Red Indians are collecting wood like Crazy.”
This is how stock markets work ! ! ! ”
a post from Abhishek Hirpara at Behavioral Finance Groups.
”Life can only be understood backward, but must be lived forward”
SOREN KIERKEGAARD.
”some theories have been invented by academics not because they have something
to say but because they have to say something”
anonymous.
”Life can only be understood backward, but must be lived forward”
Soren Kierkegaard.
”Those are my principles, and if you don’t like them... well, I have others.”
Groucho Marx.
”Il y a deux façons de se tromper : L’une est de croire ce qui n’est pas, L’autre de
refuser de croire ce qui est”
Soren Kierkegaard.
Copyright 2005, Daniel Herlemont, email:[email protected] YATS, All rights reserved,
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”des chercheurs qui cherchent, on en trouve ... des chercheurs qui trouvent, on en
cherche...”
Ch. de Gaulle.
”Léconomie est une science consistant à penser en termes de modèles”
Keynes.
On Instinct-Inspired Trading
Peter Smith is a finance professor at a reputable university. One day, he was finally
able to convince his wife to let him open an internet-based stock account. Given his
training and knowledge on the stock markets, he was more than confident about his
stock trading instincts and skills.
After the first few months of trading, he was frustrated with the fact that every
time he thought a stock was going to make him money, it turned out to be a loser.
Having recently learned about being contrarian, he decided to go against his instincts :
he would buy stocks that he thought very negatively of, and short stocks that he thought
very positively of.
A few more months later, he still found himself losing money. Well, he had tried
....
Zhiwu Chen, Professor of Finance ...
On Expected Returns vs Stock Valuation
”I have a good theory that can explain the expected future return on every stock,”
says John to Joe.
”So, what is the expected one-year-forward return on IBM today ?” Joe replies excitedly.
”Aaaaaaaaah .... I don’t know and I cannot determine it. My theory can explain it,
though. Once the expected IBM return is known, that is.”
Zhiwu Chen, Professor of Finance ...
”Unlike other biological sciences, finance and economics are often betrayed by the
fact that the rats are studying the scientists.” John F. O. Bilson
Copyright 2005, Daniel Herlemont, email:[email protected] YATS, All rights reserved,
2
”... prices in the financial markets are much more the result of some contractual
agreement between two consenting, fallible, and bounded rational, humans rather that
the dynamics of some pollen particles in water.”
Nassim Taleb
”The future, in some sense, will be like the past. Certain patterns have predictive
value, because they replicate themselves through time. Our assignment is to find these
patterns. This is the science. The rest is voodoo. ”
Doyne Farmer, The Predictors - reading notes :
Why is there structure in financial markets ? Why does the data cluster in predictable patterns ? The short answer is simple. Financial markets are the product of
human activity, and humans are irrational, trend following, herd driven creatures who
react and overreact en masse. Traders share common knowledge and biases. We all read
the same newspapers. People tend to look at the world in a similar manner. We share
common emotions, like fear and greed. We obey universal rules of human psychology
and acts in herd. ”Market depends on the way people think about markets, which in
turn influences the way they trade, which influences what the markets do, which inlfuences the way they think about them. There’s a king of regress. We know from control
theory that lags between phenomena and the controls placed on them will make things
to oscillate. A similar lag exists between receiving news and trading on that news. Time
lags and delays in market perception create oscillations. An other important factor is
the positive feedback that exists between perceptions of markets and the markets themselves, which creates self-fulfilling prophesis ... you also have to anticipate the move of
the other players
Doyne Farmer, The Predictors - reading notes :
”Finance is a pure information game. A lot of people in the business are doing
things that should be done by computers”
David Shaw,
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”Si, a l’égard de plusieurs questions traitées dans cette étude, j’ai comparé les
résultats de l’observation à ceux de la théorie, ce n’était pas pour vérifier des formules
établies par les méthodes mathématiques, mais pour montrer seulement que le marché,
à son insu, obéit à une loi qui le domine : la loi de la probabilité.”
L. BACHELIER, 1900
”La théorie, c’est quand on sait tout et que rien ne fonctionne. La pratique, c’est
quand tout fonctionne et que personne ne sait pourquoi. Ici, nous avons réuni théorie
et pratique : Rien ne fonctionne... et personne ne sait pourquoi !”
Albert Einstein.
”An engineer thinks that his equations are an approximation to reality. A physicist
thinks reality is an approximation to his equations. A mathematician doesn’t care.”
Anonymous
” Mettez cinq cents singes qui gesticulent dans une salle des marchés. Aucun d’entre
eux n’écrira jamais un poème digne d’Eluard, mais au bout d’un certain temps, il y en
aura un aussi riche que George Soros. ”
J.P. Bouchaud.
” Finance is a fascinating field with huge amounts of money at stake. There is a
danger that this might sometimes lead physicists astray from minimal scientific rigor.
”
Cont, Bouchaud & Al.
” Trying to model the complex interdependencies between financial assets with so
restrictive concept of correlation is like trying to surf the internet with an IBM AT.”
Carol Alexander
Copyright 2005, Daniel Herlemont, email:[email protected] YATS, All rights reserved,
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”In a good mystery story the most obvious clews often lead to the wrong suspects. In
our attempts to understand the laws of nature we find, similarly, that the most obvious
intuitive explanation is often the wrong one.
Einstein, Infeld, 1938, p. 8
Les problèmes ne viennent pas tant de ce que l’on ignore, mais de ce que l’on sait.
Artemus Ward.
Il faut utiliser les modèles, non y croire.
Henri Theil.
Il est humain de se tromper, admirable de pardonner, par contre faire une étude
avec des termes aléatoires, c’est de la statistique
Leslie Kish.
La vie est l’art de tirer des conclusions suffisantes, à partir de prémisses insuffisantes.
Samuel Butler.
Le calcul des probabilités parle de léchantillon à partir de la population. La statistique inférentielle parle de la population à partir dun échantillon.
Plus que sur tous les livres, je m’appuierai sur l’expérience, le maı̂tre des maı̂tres.
Leonardo da Vinci.
Copyright 2005, Daniel Herlemont, email:[email protected] YATS, All rights reserved,
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”Quand j’étais jeune, j’espérais démontrer l’hypothèse de Riemann. Quand je suis
devenu un peu plus vieux, j’ai encore eu l’espoir de pouvoir lire et comprendre une
démonstration de l’hypothèse de Riemann. Maintenant, je me contenterais bien d’apprendre qu’il en existe une démonstration”.
André Weil.
”Il faut quand même accepter le fait que quand on enfonce une porte, il y ait parfois
quelqu’un derrière.”
Dr Marco.
”quand on sait, on fait ; quand on ne sait pas bien on conseille. Quand on ne sait
pas du tout, on enseigne”, un prof d’économie à Polytechnique.
”de tous les experts les experts monétaires sont ceux qui se trompent avec le plus
de certitudes” Cours de macro-économie.
”les prévisions sont d’autant plus aléatoires qu’elles concernent l’avenir”
”comme une minijupe, l’exposé doit être assez court pour retenir l’attention et assez
long pour couvrir l’essentiel du sujet”
Il était une fois un roi indien qui adorait jouer aux échecs. Souhaitant exprimer sa
reconnaissance à l’inventeur de ce jeu, le roi lui proposa d’émettre un désir, afin de le
satisfaire. L’inventeur, un brahmane ou un vizir plein de sagesse, demanda simplement
que l’on prenne un échiquier et que l’on place un grain de riz sur la première case de
celui-ci, deux grains de riz sur la deuxième case, quatre sur la troisième, et ainsi de
suite, le nombre de grains devant être doublé à chaque fois. Le caractère apparemment
anodin de ce souhait déclencha la colère du roi. Mais il s’agissait en réalité d’une
formidable récompense pour le sage. En effet, calculant le nombre total de grains de riz
à placer sur les 64 cases de l’échiquier, l’intendant du grenier royal arriva au résultat
phénoménal d’environ 18,5 trillions de grains, un nombre à 20 chiffres. Tout le riz
produit dans le monde durant 1000 ans ne suffirait pas à couvrir une telle quantité ...
Copyright 2005, Daniel Herlemont, email:[email protected] YATS, All rights reserved,
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