
Hacking the random walk hypothesis - harperlee
http://www.turingfinance.com/hacking-the-random-walk-hypothesis/
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blazespin
It's worth noting that its pretty easy to generate data that passes all NIST
random tests which is 100% predictable / pseudo random. Eg, just encrypt using
AES 256 with the key "predictable" hashed. So, these tests are necessary but
not sufficient to prove a random walk hypothesis. The author says as much, but
buries this somewhere midway down the article.

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gwern
> Markets are, quite simply, not random.

In the strict statistical sense, no one has ever disputed this... EMH is about
excess returns. Of course the market has long-term trends - they go _up_ ,
because the world is getting richer. Specifically, they go up something like
7% annually in the USA. So if you work with daily returns, your randomness
suite had better reject the hypothesis of randomness!

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femto113
I've always assumed that the randomness of the markets was self-healing: if
the markets exhibit non-randomness (and thus become predictable) some
arbitrageur will step in and correct it and then some trader will figure out a
way to make money against the arbitrage. The best analogy I know of is Rock-
Paper-Scissors. The commonly accepted optimal strategy is random, but against
a random strategy always choosing rock works exactly as well. It is only if
your opponent recognizes the lack of randomness and breaks their own
randomness that they can capitalize, at which point you can counter.

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sullyj3
Commonly accepted optimal strategy? I'd like to see a reference on that one.
If always choosing rock works exactly as well, (against a random opponent) in
what sense can randomness be called optimal? The key to winning is obviously
to determine your opponent's strategy and exploit its weaknesses.

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jessaustin
How on earth does TFA relate to the Guy-Fawkes-mask-with-star-spangled-
bandanna look in the accompanying picture?

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boxy310
HAXXORS

I half believe it to be a branding thing at this point.

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dnautics
I wonder if there's a timescale-dependence of the appearance of randomness
here. Subject the data to a series of Gaussian high bandpass filters in
Fourier space and repeat the analysis. Does the randomness get higher the
higher the frequency?

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aet
I'm not exactly sure what your asking, but basically randomness in returns
decreases as you increase the sampling rate (i.e. annual returns are more
normal than say minutely returns). This is due basically to the fact that the
more activity happens between measurements. (I could be misunderstanding your
question.) High frequency measurements of prices often exhibit regularities
that result from the trading mechanism e.g. bid-ask bounce.

