22 May 2010

Financial Models are in Surprising Places

It took me years to get to finance by way of many things. The graduate and post-graduate work I did was about modeling, using advanced computational algorithms, to derive behavior of systems. They were engineering systems, cars and analogue circuits, not markets.

Years later, I got hold of some popular books about investing. These books were the first thing about investing as a process I ever read. Till then, I had not really though much about markets, they seemed like something far off, of intense importance, but populated by smart people in suits.

But now, it was totally intriguing. Why. Because it seemed to me it was about models. I wanted to know what is the model.

But I have no way of knowing what that is, so I went to the source, that is I taught myself finance, with a focus on the construction of a framework to derive assertions I could test in the marketplace itself (that is the part which is both fun and risky). I did not look for a model per se. I decided this would be a construction of praxis.

I studied financial analysis, chaos theory, statistical models in finance, pretty much everything I could find. And a framework stared to appear. I applied it to equity markets and got seemingly miraculous results as shares after a few months rose and rose and rose...like magic, but it wasn't.

It was the result of a computational system (the markets) which cohered the structure and function of a company to a share value symmetrical to this, over time (the process to symmetry from asymmetry is consequent on certain divergences in financial statements). This computation was decayed by debt structures in the market. In fact it worked most strongly after the crash of 2008, when debt structures were cleared from the market. But they were put back in, by the $ carry trade bubble.

But if as I believe President Obama will effectively restore asset value with his policies, then this function of the market will be strongly restored again.

(edited 5/12/13 12:45pm)
(edited 7/6/14 9:08pm)

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