On Tue, Apr 08, 1997 at 01:51:45AM -0400, Robert Hettinga wrote:

At 12:36 pm -0400 on 4/7/97, Kent Crispin wrote:

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Nope. Not any of those things (Gee, there's that "statist" word again. There must be a playbook somewhere).

Yes. It's from the same playbook which says I now get to call you a "twit".

Uh oh. Must of touched a nerve...

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More a "security analyst" notion. See the cute little book "Chaos and the Capital Markets" (I don't have it handy so I can't give you the author.) Anyway, he makes an empirical of security prices, and demonstrates that they are chaotic. It was more oriented to practitioners, not theorists...

Bark. Chaos theory has nothing to say about the capital markets practically by definition, but that's a "security analyst" notion, so you probably wouldn't understand it.

Sorry. It's Edgar Peters, "Chaos and Order in the Capital Markets", John Wiley, 1991. I'm sure you will rush out and buy a copy :-)

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Chaotic is not the same as stochastic.

Actually, chaotic behavior is a subset of stochastic behavior. I stand by what I said.

Clearly, you don't know what you are talking about. Strictly speaking, chaotic behavior (as mathematically defined in chaos theory) is completely *deterministic*, not random. The conundrum is that chaotic behavior *looks* random, and indeed, it can be very hard to tell if a set of data is generated by a determinstic chaotic procedure or a stochastic procedure. Pretty pictures of Mandelbrot and Julia sets are generated by selecting points *determinstically*, iterating through a *determinsitic* algorithm, and looking at the result. It's the mathematics that creates the complexity, not randomness. (To be fair, of course, I must also state that some fractals are generated by starting with random numbers and running them through some algorithm.)

Just because a random variable is predictable within certain parameters doesn't mean that you can call say, every flip of a coin 100 times. When you get to the limit of predictability, you are as "efficient" as you can get.

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There are obviously stochastic factors in markets. Equally obviously, they are not the only factors.

Sure. What? The devine right of kings? The inherent good of the surveillance state? I say that stochasticity, including chaos, is the only factor that matters.

No, you described it just above when you said "just because a random variable is predictable within certain parameters". So, for example, I know that if a head is worth $1 and a tail is worth -$1, my net worth won't jump by $100 on a single toss.

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The fact that markets demonstrate a chaotic element is potentially exploitable as a trading strategy.

That statement, is, of course, an another oxymoron, just like "market control".

I don't know whether you are expressing your flatulent ignorance of chaos theory, or whether you are referring to the term "trading strategy". I will give you the benefit of the doubt and assume the latter, and agree that the term "trading strategy" is at least suspicious.

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I heard that's why trading houses were hiring physicists, incidentally -- most of the expertise in Chaos Theory was developed in the context of physics.

Rediculous. Most of the "expertise" in chaos "theory" is in the hands of dillitantes who like to draw pretty pictures.

A lot of those, for sure. But Mandelbrot did some of his first work on chaos studying cotton prices with Hendrik Houthakker, a Harvard economist. But how about Edward Lorenz (of the "Lorenz attractor") studying weather, studies of turbulence, Feigenbaum & Co at Los Alamos, the Dynamical Systems Group at Santa Cruz, etc etc. The pretty pictures are pretty, but even I can do those.

Most of the physicists hired by Wall Street were people who discovered market analogs to physical processes. A friend of mine, for example, who used Monte Carlo simulations to analyze sonar returns, and now uses Green's functions to get faster results on interest rates and total return scenarios on bonds. Or another, who did 2D magnetohydrodynamic code once, and now does fun stuff in the currency markets.

Sure, that too.

The problem with simulating a market with emergent systems is that you can't say anything about a given market when the simulation is over. Just about the simulation. Otherwise (duh?) it's not chaotic enough. Which, by the way, was my point. When you get to "chaos", you're as "efficient" as you can go.

I wasn't referring to simulating markets; I was referring to studying real markets. [...]

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That's "Crispin", Mr. Applethwaite. I hate being mislabeled.

Ah. Another ad hominem.

No, just a joke. Boy, I must really have hit a nerve. Sensitive big ego, perhaps?

See "twit", above. You're ugly, and your mother dresses *you* funny, too. By the way, I'm sorry I misspelled your name. For some reason, it seems I didn't respect you enough to get it right...

That's ok. I just attribute it to a fragile ego, anyway.

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I never said anything about planned economies being efficient. In fact, I never mentioned planned economies at all.

You said that "chaotic" markets aren't efficient. I said exactly the opposite. That they are the ultimate in efficiency, and that if you believe that chaotic markets are not efficient, you must favor planned economies, because they're the only alternative.

It's understandable that you might make this mistake, given your misunderstanding of dynamic systems.

I figure this tendency towards stringent control must be from where you work or something. Oops. Another ad hominem. So sorry. They must be in the air this evening.

That nerve must really be throbbing. Sorry.

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Obviously I can't "prove" markets are not efficient -- that's an empirical matter, not a mathematical matter. However, no one can prove they are efficient, either (that's why it's the "Efficient Market *Hypothesis*"). There are many other examples of persistent inefficiencies in markets, the presidential election year cycle being the first to come to mind.

Right. And the increasing American importation of bananas throughout the 20th century caused an increase in suicide. Another informal fallacy. You're nine for nine tonight, Mr. Ch^hispin. Of course there are actual exceptions to the efficient market hypothesis, fools' markets being the most famous example.

You don't like my example, but agree to my point. I like that. So now we both agree that "there are actual exceptions to the efficient market hypothesis" (your words).

However, the crash of any given fool's market is completely unpredictable, and, as such, is as efficient a price as you're going to get, paradoxically. Which was my point.

You, unfortunately, misunderstand your own example. It actually is a paradox.

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[interesting but besides the point argument deleted]

Actually, it was the *whole* point, but you didn't get it. Another one of those "security analyst" notions, which kind of blew by you, in what seems to be a rather breezy evening in your neck of the woods...

Plenty of hot air around, as you speak.

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This inability of a hierarchy to handle as much information or resources as a geodesic is, of course, a major problem with key escrow,

No, it's a theoretical problem that has no impact on practical key recovery systems.

Okay. I'll tell you this one, for fun, too, since you don't get *it* either. In a geodesic network, a single node can not possibly process all the information in the network. It chokes, and the network routes around it.

You can bet that any key escrow agent would be innundated with surviellance requests

No, I wouldn't bet that. Even a lame theory a looks good against a braindead strawman. [rest of braindead strawman deleted]

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"Whip me! Beat me! Savage me in Cypherpunks!"

Just lay there and take it, slave. You know you love it, or you wouldn't be here.

Actually the most entertaining thing is watching blowhards at work. And one thing for sure, Bob -- for all your failings, you *do* know how to blow. -- Kent Crispin "No reason to get excited", kent@songbird.com the thief he kindly spoke... PGP fingerprint: B1 8B 72 ED 55 21 5E 44 61 F4 58 0F 72 10 65 55 http://songbird.com/kent/pgp_key.html