In summary, information is neither totally nor immediately integrated in market prices, but manifests itself as a bias. This bias continues until the arrival of new information that changes the bias’ magnitude, direction or both after a given number of observations in a series. ]]>

In summary, information is neither totally nor immediately integrated in market prices, but manifests itself as a bias. This bias continues until the arrival of new information that changes the bias’ magnitude, direction or both after a given number of observations in a series. ]]>

1. heterogeneous perceptions create some uncertainty and differences, albeit minimal, between the market price and the fundamental price

2. Lags in information dissemination creates greater disparity between the equilibrium price and the actual price

3. Arbitrageurs can generate enough profit to cover transaction and information costs

4. Execution risk is low due to High volume of trading

this is one of the phases of the market cycle that I call in my book: Constrained and optimal entropy model in Noisy information systems.]]>

1. heterogeneous perceptions create some uncertainty and differences, albeit minimal, between the market price and the fundamental price

2. Lags in information dissemination creates greater disparity between the equilibrium price and the actual price

3. Arbitrageurs can generate enough profit to cover transaction and information costs

4. Execution risk is low due to High volume of trading

this is one of the phases of the market cycle that I call in my book: Constrained and optimal entropy model in Noisy information systems.]]>

Each market phase has its trading opportunities. An offensive approach is based on the notion of diversification at the strategy level between directional and volatility strategies; and of a macro-design approach.

Tools such as cyclical and psychological analysis, fundamental convergent analysis and the estimation of risks, allow us to evaluate the market biases in order to establish an accurate estimation of the prevailing state of the system and the risk towards which it is heading. Once markets’ characteristics are grasped, risk forecasting models can be enhanced. Models can be built on the basis of multifractal markets but are not limited to using only fractal tools such as for example the Hurst exponent. In fact, fractal thinking allows us to discern the most appropriate way of developing models. Be it technical analysis, behavioral finance, cycles analysis, power laws, thermodynamic etc.…all of these are useful as long as we know how to implement them in our models whilst remaining aware of their limits.]]>

Each market phase has its trading opportunities. An offensive approach is based on the notion of diversification at the strategy level between directional and volatility strategies; and of a macro-design approach.

Tools such as cyclical and psychological analysis, fundamental convergent analysis and the estimation of risks, allow us to evaluate the market biases in order to establish an accurate estimation of the prevailing state of the system and the risk towards which it is heading. Once markets’ characteristics are grasped, risk forecasting models can be enhanced. Models can be built on the basis of multifractal markets but are not limited to using only fractal tools such as for example the Hurst exponent. In fact, fractal thinking allows us to discern the most appropriate way of developing models. Be it technical analysis, behavioral finance, cycles analysis, power laws, thermodynamic etc.…all of these are useful as long as we know how to implement them in our models whilst remaining aware of their limits.]]>