” ‘Big mo’ is your friend in the stock market” this Valentine’s Day

February 15, 2008

There’s an interesting video on FT today (John Authers, the Short View) reporting on some research which posses an empirically supported challenge the random walk hypothesis from efficient market theory.  Historical research done by London Business School shows that there has been, in practice, a momentum effect during the 20th century in the way the market has moved.  According to the study, the effect can be traced across several markets with the exception of the U.S.  (See synopsis or press release.)  Authers concludes that “maybe there’s something to be said for trading heavily and just looking at who’s hot…”

Any guesses or predictions as to what the potential performative effect of a piece of research like this might be?

(In passing, I was puzzed as to what ‘big mo’ might mean.  Turns out it has some rather naughty uses which I’ll leave the reader to look up on their own.)

2 Responses to “” ‘Big mo’ is your friend in the stock market” this Valentine’s Day”

  1. It seems that most all my economics and finance classes on a graduate and undergraduate level had manditory lectures on efficient market theory and the randon walk theory. Professors did not take kindly to those who questioned these theories. This was an article of faith with them, and studies to the contrary are unlikely to shake that faith.

  2. yuvalmillo Says:

    Interesting stuff. About the performative value: my initial reaction would be that Black-Scholes-like performativity is not very likely because it is difficult to derive explicit and accurate actions from the predictions. I haven’t read the paper, and they may have come up with a good set of measurement tools, but as far as I know, it is not easy to decide what assets are positively over-traded or traded above their ‘right’ price.

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