Friday 2010-08-20

Andrew Lo and Mark Mueller have a paper out, titled Warning: Physics Envy may be Hazardous to your Wealth!.

Basically, this paper inadvertently says two things: 1) study your history, 2) take a physics approach to finance.

If, over a 70-year period, the U.S. did not experience a signicant national-level decline, how could the possibility of such a decline be factored into the analysis?
-- page 59
If Tycho, Kepler, Galileo and Newton had been confronted with such "quasi-periodic" data for the cyclical paths of the planets, it may have taken centuries, not years, of observational data for them to arrive at the same level of understanding of planetary motion that we have today.
-- page 25

Of course, von Neumann provides the fitting closing:

"If people do not believe that mathematics is simple, it is only because they do not realize how complicated life is".
-- John von Neumann