QuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: FermionQuoteOriginally posted by: Traden4Alpha QuoteOriginally posted by: FermionMy only quantitative argument is the example from Mandelbrot & Taleb that shows that ten days of (mostly) busts take away about half the gains of 20 years.There are at least half a dozen nonbubble phenomena that cause the same pattern.Then list them and, if you claim they can be quantified, do so with adequate documentation rather than asssertions. And mere triggers, like hurricanes, don't count. Neither does anything which is stock- or sector-specific. We're talking S&P here.I have clearly enumerated three or four of them by category and exampleNo you didn't. You listed examples which don't qualify. Nor did you provide anything but assertions. QuoteYour emphasis on S&P vs. stock- or sector-specific factors shows how little you understand actual bubble formation and the profit structures of alleged perpetrators of fraudulent bubbles. Given your emphasis on this one minor source of skew leptokurtic returns, I'd think you'd have a deeper model of it. Oh well. (Hint: if you think about the revenues from disequilibria and costs of creating disequilibria, then you will realize that sector bubbles are both more easily created and more consistently and short-term profitable than are aggregate equity market bubbles.)Fallacy. The Taleb/Mandelbrot data is in the S&P. If you think that an argument for stock/sector-specific growth (even for a large collection of stocks or multiple sectors) that is not a bubble (or a bunch of stock-specific bubbles) can affect the net market so dramatically, provide some evidence for (a) it not being an engineered bubble (e.g. never having been mentioned on "mad money") and (b) it having a significant collective effect on the S&P comparable to the ten day 50% effect.

QuoteOriginally posted by: FermionQuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: FermionQuoteOriginally posted by: Traden4Alpha QuoteOriginally posted by: FermionMy only quantitative argument is the example from Mandelbrot & Taleb that shows that ten days of (mostly) busts take away about half the gains of 20 years.There are at least half a dozen nonbubble phenomena that cause the same pattern.Then list them and, if you claim they can be quantified, do so with adequate documentation rather than asssertions. And mere triggers, like hurricanes, don't count. Neither does anything which is stock- or sector-specific. We're talking S&P here.I have clearly enumerated three or four of them by category and exampleNo you didn't. You listed examples which don't qualify. Nor did you provide anything but assertions. I listed categories of phenomena that induce the same negative skew, high kurtosis returns described in Taleb/Mandelbrot. It's not my fault that you won't even consider any hypotheses that don't fit your silly conspiracy theories.QuoteQuoteYour emphasis on S&P vs. stock- or sector-specific factors shows how little you understand actual bubble formation and the profit structures of alleged perpetrators of fraudulent bubbles. Given your emphasis on this one minor source of skew leptokurtic returns, I'd think you'd have a deeper model of it. Oh well. (Hint: if you think about the revenues from disequilibria and costs of creating disequilibria, then you will realize that sector bubbles are both more easily created and more consistently and short-term profitable than are aggregate equity market bubbles.)Fallacy. The Taleb/Mandelbrot data is in the S&P. If you think that an argument for stock/sector-specific growth (even for a large collection of stocks or multiple sectors) that is not a bubble (or a bunch of stock-specific bubbles) can affect the net market so dramatically, provide some evidence for (a) it not being an engineered bubble (e.g. never having been mentioned on "mad money") and (b) it having a significant collective effect on the S&P comparable to the ten day 50% effect.How many pump-n-dump emails, newsletters, stock forums posts, etc. do you see for SPY, QQQQ, and DIA? Instead the favorite target of the pump-n-dump bubble scheme is illiquid pink sheet penny stocks because the cost of pumping them is so low and the profits from pumping them are so high. Just look at the relative price elasticity of different stocks versus that of the aggregate markets. And look at the magnitude of net flows of money in the equity markets versus the total trading volume. Pumping a small stock is easy and profitable. Pumping a big market (e.g. the S&P 500) is hard. Moreover, what hedgie or IB trader would accept a trading strategy that provides only 5% profit an average of once a year (only 10 profitable trades in ten years and that's assuming perfect timing)? The Taleb/Mandelbrot data does not fit the incentive structures of actual traders, their corporations, or their shareholders, which demand higher profits on short timescales. Again, your theory fails to fit the data (not surprising given that you can't be bothered to analyze data).

QuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: FermionQuoteOriginally posted by: Traden4AlphaQuoteOriginally posted by: FermionQuoteOriginally posted by: Traden4Alpha QuoteOriginally posted by: FermionMy only quantitative argument is the example from Mandelbrot & Taleb that shows that ten days of (mostly) busts take away about half the gains of 20 years.There are at least half a dozen nonbubble phenomena that cause the same pattern.Then list them and, if you claim they can be quantified, do so with adequate documentation rather than asssertions. And mere triggers, like hurricanes, don't count. Neither does anything which is stock- or sector-specific. We're talking S&P here.I have clearly enumerated three or four of them by category and exampleNo you didn't. You listed examples which don't qualify. Nor did you provide anything but assertions. I listed categories of phenomena that induce the same negative skew, high kurtosis returns described in Taleb/Mandelbrot. It's not my fault that you won't even consider any hypotheses that don't fit your silly conspiracy theories.I'm willing to consider anything that is not another example of bubble building and that has an impact on the market as a whole. It's not my fault you can't find any. There's no conspiracy theory. It's common sense in a capitalist environment.QuoteQuoteQuoteYour emphasis on S&P vs. stock- or sector-specific factors shows how little you understand actual bubble formation and the profit structures of alleged perpetrators of fraudulent bubbles. Given your emphasis on this one minor source of skew leptokurtic returns, I'd think you'd have a deeper model of it. Oh well. (Hint: if you think about the revenues from disequilibria and costs of creating disequilibria, then you will realize that sector bubbles are both more easily created and more consistently and short-term profitable than are aggregate equity market bubbles.)Fallacy. The Taleb/Mandelbrot data is in the S&P. If you think that an argument for stock/sector-specific growth (even for a large collection of stocks or multiple sectors) that is not a bubble (or a bunch of stock-specific bubbles) can affect the net market so dramatically, provide some evidence for (a) it not being an engineered bubble (e.g. never having been mentioned on "mad money") and (b) it having a significant collective effect on the S&P comparable to the ten day 50% effect.How many pump-n-dump emails, newsletters, stock forums posts, etc. do you see for SPY, QQQQ, and DIA?We are inundated with stuff every day telling us to invest in an index. Bogle has spent his life doing it. When Bush tried to privatize social security they even told us an index was safer than government. Even bullshit lauding or a particular stock or sector is bubble-building that contributes to the market as a whole when done for a large number of stocks.QuoteInstead the favorite target of the pump-n-dump bubble scheme is illiquid pink sheet penny stocks because the cost of pumping them is so low and the profits from pumping them are so high.Irrelevant because we are talking about the S&P.QuoteJust look at the relative price elasticity of different stocks versus that of the aggregate markets. And look at the magnitude of net flows of money in the equity markets versus the total trading volume. Pumping a small stock is easy and profitable. Pumping a big market (e.g. the S&P 500) is hard.Nonsense. The propaganda is free -- the media make sure of that. Pump-and-dump doesn't depend only on large (%-wise) investments (although it certainly depends on how much "big money" is involved). That's only an issue for penny-stocks -- which we are not discussing anyway -- and requires precision. Pump-and-dump in the market as a whole is like a shot-gun by comparison and relies much more heavily on the media (and politicians).QuoteMoreover, what hedgie or IB trader would accept a trading strategy that provides only 5% profit an average of once a year (only 10 profitable trades in ten years and that's assuming perfect timing)? The Taleb/Mandelbrot data does not fit the incentive structures of actual traders, their corporations, or their shareholders, which demand higher profits on short timescales. Again, your theory fails to fit the data (not surprising given that you can't be bothered to analyze data).Do I really have to list all the fallacies in this argument too? Sorry, I can't be bothered.

QuoteQuoteQuoteQuoteYour emphasis on S&P vs. stock- or sector-specific factors shows how little you understand actual bubble formation and the profit structures of alleged perpetrators of fraudulent bubbles. Given your emphasis on this one minor source of skew leptokurtic returns, I'd think you'd have a deeper model of it. Oh well. (Hint: if you think about the revenues from disequilibria and costs of creating disequilibria, then you will realize that sector bubbles are both more easily created and more consistently and short-term profitable than are aggregate equity market bubbles.)Fallacy. The Taleb/Mandelbrot data is in the S&P. If you think that an argument for stock/sector-specific growth (even for a large collection of stocks or multiple sectors) that is not a bubble (or a bunch of stock-specific bubbles) can affect the net market so dramatically, provide some evidence for (a) it not being an engineered bubble (e.g. never having been mentioned on "mad money") and (b) it having a significant collective effect on the S&P comparable to the ten day 50% effect.How many pump-n-dump emails, newsletters, stock forums posts, etc. do you see for SPY, QQQQ, and DIA?We are inundated with stuff every day telling us to invest in an index. Bogle has spent his life doing it. When Bush tried to privatize social security they even told us an index was safer than government. Even bullshit lauding or a particular stock or sector is bubble-building that contributes to the market as a whole when done for a large number of stocks.QuoteJust look at the relative price elasticity of different stocks versus that of the aggregate markets. And look at the magnitude of net flows of money in the equity markets versus the total trading volume. Pumping a small stock is easy and profitable. Pumping a big market (e.g. the S&P 500) is hard.Nonsense. The propaganda is free -- the media make sure of that. Pump-and-dump doesn't depend only on large (%-wise) investments (although it certainly depends on how much "big money" is involved). That's only an issue for penny-stocks -- which we are not discussing anyway -- and requires precision. Pump-and-dump in the market as a whole is like a shot-gun by comparison and relies much more heavily on the media (and politicians).LOL! You really understand nothing about economics or anything I've written because I've already explained the fallacy of that argument. Q: what is the long-term effect of constant shotgun pumping? A: Zero profits for the pumper. LOL!QuoteQuoteMoreover, what hedgie or IB trader would accept a trading strategy that provides only 5% profit an average of once a year (only 10 profitable trades in ten years and that's assuming perfect timing)? The Taleb/Mandelbrot data does not fit the incentive structures of actual traders, their corporations, or their shareholders, which demand higher profits on short timescales. Again, your theory fails to fit the data (not surprising given that you can't be bothered to analyze data).Do I really have to list all the fallacies in this argument too? Sorry, I can't be bothered.The list is the nullset? P.S. I started looking at the Taleb/Mandelbrot analysis and you should to

QuoteOriginally posted by: FermionQuoteOriginally posted by: Traden4AlphaYou claim its pump-n-dump and yet it can't be that because the alleged fraudsters never dumped, they held and cratered (they're still holding!).I never said execution was perfect and they couldn't get trapped (and bailed out). This is now the fifth time you've tried that very same fallacy in this thread.Conspiracy theory ...Actually Emanuel Derman thinks the same. Taken from his blog (record of Sept. 15, 2009),QuoteLast night I held a panel at Columbia about the economic system and the principles that should govern it. One interesting question raised but not answered by Prof Bhagwati was: Why are the returns to the finance industry so great? No one had a really good explanation but two reasonable ones were: the existence of cartels, and secondly, that financial firms' outsize returns are periodically wiped out by risks they weren't paying adequate insurance for.So, you both believe that Investment Banks created cartel to make extra profits ...I suggest for you to organize separate thread summarizing your and his ideas since this topic is very important for understanding the functioning of today's financial markets ...

If u look a the mess around u would conclude Chaos is everywhere and applies to everything...Being serious one moment, I agree with Kack on chaos theory being definitely dead as catastrophe theory before, but many notions and ideas inherited sill remain relevant and of practical use. Think of Kolmogorov entropy, Lyapounov exponents and all related ideas...

QuoteOriginally posted by: Traden4AlphaLOL! You really understand nothing about economics or anything I've written because I've already explained the fallacy of that argument. Q: what is the long-term effect of constant shotgun pumping? A: Zero profits for the pumper. LOL!Which demonstrates once again that you have completely failed to make any effort to understand what I write whenever it conflicts with your ingrained prejudices.

Hmm this discussion is becoming kind of CHAOTIC...Maybe one could calculate its limit set if there is any before it degenerates...

QuoteOriginally posted by: ALTOKENBeing serious one moment, I agree with Kack on chaos theory being definitely dead as catastrophe theory before, but many notions and ideas inherited sill remain relevant and of practical use. Think of Kolmogorov entropy, Lyapounov exponents and all related ideas... the most likely application of chaos theory would have been in inflationary universe cosmology. String theory believes the original pre-universe is comprised of multi-genus calabi yao manifolds that bubble with black holes and primordial universes. HOWEVER, no cosmologist believes chaos theory describes the primordial universe. Even the bubbles are NOT chaotic.

Conspiracy or intrinsic fragility of a complex system?Strategic marketing (in real economy) has 2 "extremes":- if you are financially strong, you develop-your-markets-for-leadership - if not, you need to apply the segment-markets-and-select-the-segment-for-leadership approach (how small it ever is)(segmentation, does not only mean territorial, but sectorial, socio-economic, psychological, .. )In both cases you strive for a monopoly position (the so-many-users-cannot-fail growth code in an "encapsulated" information system), which inevitably leads to an often chaotic feed-back structure with fast-growing-returns-towards-market-saturation and unexpected break-downs (counterintuitive) and consequently a bubble, IMO.(the Chateau-Lafite-Index-in-parts-of-Asia is such an example).I am not a market practitioner, nor an analyst, therefore I have no idea, whether this holds in financial markets.But in real economy, we have conspiracy, as well as the intrinsic fragility .... And for the topic: (economic) life only happens on the small border between chaos an order (and we move the border, when we approach it)(this general observation cannot be made with models, but with kind of state-transition machines, cellular automata, ..)

externalrisk, how can you have conspiracy at a significant scale in exchange markets where trading is anonymous?

QuoteOriginally posted by: KackToodlesexternalrisk, how can you have conspiracy at a significant scale in exchange markets where trading is anonymous?As said (I confessed my lack of in-line financial market experience!), in real economy we have, cartel-building and "arrangements" to monopolize market segments. Emanuel Derman (in his Blog) seems to agree that this is also possible in finance?

From this thread I can see there is a lot of chaos in understanding chaos theory.Chaos is the seed of order, order is the seed of chaos!

QuoteOriginally posted by: CollectorFrom this thread I can see there is a lot of chaos in understanding chaos theory.Chaos is the seed of order, order is the seed of chaos! hmm, hmm. A chaotic "world" is computationally irreducible (everything is random). Order is the result of a computational reduction (the flat world reduced to x^2 has no random left)? So, mathematics and programming are disciplines of data-compression

QuoteOriginally posted by: CollectorChaos is the seed of order, order is the seed of chaos! I love this phrase! Perfect! Bravo!The chaos of this thread is a microcosm for the chaos of the markets which are pumped (and dumped) by the oscillating levels of confidence-vs.-insecurity of the various participants. Cashflow needs aside, every market transaction involves one party (the buyer) that thinks the instrument will certainly appreciate in value and another party (the seller) that thinks the instrument will uncertainly depreciate in value. Which party is the greater fool is something for time to reveal.The nonlinear feedback that induces chaos (and worse) arises from the fact that the participants can both see the historical "patterns" (at least they think they see patterns) in the prices and the actions of other participants (e.g., self-reported, regulatory-compliance-reported, and market data on who's buying/selling what). Beliefs about the structure of returns and risks (conditional on observed data) lead to further actions (buying, selling, & reporting) and those actions create returns and risks.In the global sense, true chaotic systems are usually quite ordered with the strange attractor inhabiting some fractal dimension that is less than the dimensionality of the state space. Even the temporal dynamics of chaotic systems are quite ordered. In the short-term, chaotic system are 100% deterministic with respect to successive closely-spaced samples. In the very long term, chaotic systems are 100% predictable with respect to a tightly restricted distribution of outcomes n the larger state space. In the medium term, its messy with the Lyapunov exponent reflecting the rate (and vector) of divergence, disorder, unpredictability of the system. But markets are worse than chaotic because the actions of the participants (e.g., the evolution of new instruments, new models, new strategies, and new regulations) change the structure of the system.