Beat the Market - Let Your House Cat (Robot) Invest?
There are many anecdotes that creatures could beat the stock market with "darts". Maybe the success of these "investment strategies" was not so random?
That got Alessandro Pluchino and Allessio Biondo, University of Catania, Italy, to do an analysis.
Are random trading strategies more random than technical ones? To find out (and test the hypothesis that investing blind is better than hiring a financial advisor) they took 15 years data from 4 of the world's biggest stock exchanges and tested 4 top trading algorithms against a random-selecting one.
IMO, it does not need a drumroll .. to recognize that the random algo did at least as well, as the others (with less day-to-day volatility). It has to do with the possible automatic recognitions of patterns in random fluctuations - programs are made by humans and humans suffer from Apophenia - and that also machine programs can get in panic - A stock market panic is an avalanche. In detail the researchers used a self-organized criticality generating model to study herding and avalanches dynamics in financial markets.
I am also not surprised, from observing that high frequency trading profits are falling - maybe more random trading could stop the trend (as the authors suggest).
But there seem to be still human investors understanding how to optimize risk?! They clearly use informations, models and knowledge, trading algos don't have. With the support of quants, based on their expertise.
Decisions. In the best case, analytical work will be taken from good to great and combined with natural decision-making heuristics.
Picture from sehfelder