Slide 1

Stochastic Market Efficiency

 

Date

Wednesday, 2 October 2013

Time

08:30-10:00

Speakers

Dr. Alex Adamou
London Mathematical Laboratory

Venue

Z/Yen Group, 90 Basinghall Street, London EC2V 5AY Map

Booking

Book Now

Agenda

"Neither a borrower nor a lender be"
Hamlet, Act 1, Scene 3, Line 75

Alex will show how - and why - it is impossible to "beat the market" over the long term by borrowing to invest. This implies a new form of market efficiency in which markets self-organise so that the optimal leverage in a market investment is close to one. Alex will present stability arguments for why this should be true, and will suggest feedback mechanisms by which it occurs through the adjustment of interest rates, equity returns, and volatilities.

The intuition is similar to that behind the classical efficient market hypothesis: simple strategies, such as applying constant leverage to an investment, should not generate excess returns. However, unlike classical efficiency - under which asset prices converge to an amorphous notion of fundamental value - stochastic market efficiency makes clear and falsifiable predictions and accounts for their precision. Alex will show how stock market data from the last 60 years provide strong confirmation of the hypothesis.

Dr. Alex Adamou is a Fellow at the London Mathematical Laboratory. Alex is an applied mathematician with interests in finance, economics, and gambling. His current work examines the mathematical frameworks within which familiar economic notions - such as market efficiency, utility theory, and wealth inequality - are usually discussed.

Stochastic Market Efficiency - SFI Working Paper 22.06.2013