Forum Archive Index - March 2004

[Stephen Judd <stephen@vital.org.nz>]

On Tue, 2004-03-23 at 15:34, david.gibson wrote:
> Found a really great quote in the following paper:
>  
> http://arxiv.org/abs/cond-mat/0209065
>  
> 
> "Individuals with rational expectations predict others’ behavior by
> focusing on their external incentives and constraints.  In contrast,
> individuals with adaptive expectations predict others’ behavior
> (including possibly the behavior of such an abstract "other" as the
> stock market) by extrapolating from the past".
> 
> I posit that this is a fundamental definition of FA and TA?  (An the
> basic reason why the two approaches will never be reconciled).

I was more struck by the predictions made:

"We offer a detailed analysis of what could be the future evolution of
the S&P500 index over the next two years, according to three versions of
the theory: we expect an overall continuation of the bearish phase,
punctuated by local rallies; we predict an overall increasing market
until the end of the year 2002 or at the beginning of 2003 (first
quarter); we predict a strong following descent (with maybe one or two
severe up and downs in the middle) which stops during the first semester
of 2004. After this strong minimum, the market is expected to recover."

Heh.


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