In this interview, Jim Simons challenges The Efficient Market Theory (EMT). He says anomalies exist in price data, like historical trending in commodities. While individual anomalies might not guarantee profit, identifying and combining various subtle anomalies can potentially lead to accurate predictions. This challenges the EMT, suggesting skillful analysis can exploit data-driven insights beyond just random chance.
Here’s an excerpt from the interview:
Simons: There’s something called the efficient market theory which says that there’s nothing in the data, let’s say price data ,which will indicate anything about the future, because the price is sort of always right.
The price is always right in some sense but that’s just not true.
So there are anomalies in the data, even in the price history data. For one thing commodities, especially used to trend, not dramatically trend, but trend, so if you could get the trend right you’d bet on the trend and you’d make money.
More often than you wouldn’t, whether it was going down or going up, that was an anomaly in the data.
But gradually we found more and more and more and more anomalies, none of them is so overwhelming that you’re going to clean up on a particular anomaly because if they were other people would have seen them.
So they have to be subtle things, and you put together a collection of these subtle anomalies and you begin to get something that will predict pretty well.
You can watch the entire interview here:
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