Modelling the Stock Market

"Not really random, but so complex it might as well be," is what usually springs to mind when thinking of the stock market. Finding patterns in the system is something challenging many people, with the incentive being a range of interests in the markets, or simply wanting to earn a heck of a lot of cash.

A recent article published on New Scientist, called "'Zero intelligence' trading closely mimics stock market" says scientists have been able to mimick the London Stock Exchange through the use agents who trade randomly (to put it simply). The article also has a link to a previous one, entitlted "Virtual brokers forecast real stocks", which supports the idea that the stock market, and other complex systems, can be modelled through the use of multi-agent systems.

It is possible to call the stock market chaotic, but saying it is random may be going too far. With thousands of people trading daily, it is difficult to find patterns in the system because there are so many variables and so many unknowns. However, by making a few correct generalizations, it may be possible to learn something. A lot of the lessons in the goal of finding order in the stock market can also be used elsewhere, with economics and even internatonal relations being two areas who stand to benefit.

And even if it is all random, one interesting aspect of "randomness" is that it is self-similar. Random variations look similar whether you look closely and move back and look at the big picture. Paradoxically, maybe this is the "order" we are all so interested in finding?