Wednesday, March 14, 2007

Stock Market Physics?

Holy cow! If I didn't know any better, I'd say this would be something that The Onion would put out! But this guy is damn serious! :)

This stock trader has apparently written earlier on "stock market physics", equating the dynamics of the stock market with Newton's gravitational law and Kepler's Law. His "source" is Wikipedia (of course), which as we all know, is highly reliable (don't make me gag).

Now he's back for more, and this time, he's applying more orbital motion!

Of course, as any physics major can testify, you simply cannot "plug-and-chug" into "physics equations". Such actions often lead to mindless and meaningless results. In this instance, it is not just plug-and-chug, but change-the-variable's meaning-and-substitute method. What he doesn't seem to know is that these equations were DERIVED using a set of dynamical, generalized form and then imposing "boundary conditions", which are often initial values, or constraints. This is where the physics comes in, and this is where how one sets up the starting point that makes or breaks the ability to find the solution. In classical mechanics that result in the laws being used in this case, the starting point is either the 2nd order differential equation of motion that takes into account all the forces in the system, or the Hamiltonian/Lagrangian that takes into account all the energy of the system. This is the most difficult part as far as the physics is concerned, because one has to know what are the force or energy involved, and how to write them down accurate for the relevant coordinate system. After doing this, the rest is just cranking out the mathemematics.

Unfortunately, some people think that they can just make use of the result and make "appropriate" substitutions to turn it into a valid equation for another use. This is a bastardization of physics. Such use often results in absurd and meaningless results. Pointing that somehow the results "fits" the data isn't sufficient - correlation does not imply causation. Besides, how many "fudge factors" can one juggle in a single equation anyway?


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