Re: fuzzy finance


Subject: Re: fuzzy finance
From: Dale Johnson (djohnson@mi.ab.ca)
Date: Fri Feb 25 2000 - 03:59:57 MET


Perhaps you should use the same method that actual investors use.

They listen to the media, people in chat-rooms, and analysts who
say one thing, but do another. They play hunches, feel fear and
greed.

See, if you use your very proper and logical methods, you are saying
that the average investor is proper and logical. That's where I
disagree. People say the PE is at 120 because of "long term growth
prospects", but it's because everyone is chasing the stock, when
it goes south to have a PE of 22, then people say that "there were
doubts than management could execute" when actually, everbody
jumped the bandwagon because a bunch of shorts spooked the
market, and the company has one bad quarter.

I don't think that markets always work like this, but because everyone
is in this market for a week or two instead of six months or five
years, its acting stupid.

Dale.

"PGreenfinch" <pgreenfinch@wanadoo.fr> wrote in message
news:893h4c$asq$1@wanadoo.fr...
> Dale Johnson a écrit
> >This is not to say it can't be modelled, but using an "efficiency"
> >pricipal at its base would be inaccurate. Perhaps a "perception"
> >model may excel.
> >
> Thanks a lot for your observation
> Well, you go a little farther than I do. Or maybe not.
> Of course it is a kind of paradox to use an "efficiency principal" (I
guess
> you refer to my Estimated Economic Value calculation, used as a kind of
> pivot).
> But this calculation precisely reflects a market perception, as I try to
> explain below:
> There a scores of different models and model variations to determine the
> so-called "efficient price" (this is fuzziness at its best, no !).
> You can use (present, or future, actualised or not) net earnings,
operating
> profits, cash earnings, dividends, net worth, and even "market
performance"
> (the so-called Total Shareholder Return aggregating dividends and annual
> price gains ...as long as the market prices rise !).
> You can also use various hypothesis of rates of return (according to the
> risk premium the market is supposed to consider as "normal), and different
> correlations coefficients (historical or implied beta...) between stocks
> The calculation I chose is just the one that seems to correspond to the
> fashion / buzzword of the last decades, I mean the "PER" (Price / Earnings
> Ratio).
> I tried to calibrate it precisely to reflect how the operators
unconsciously
> seems to calibrate it.
> So it is no surprise that it plays a pivotal role in the formation of
prices
> as all operators tend to use more or less this common cooking recipe.
> Maybe the fashion will change, people may put on fresh clothes for the
> "millenium", a new pivot may emerge, a different today special may be
served
> in the stock market cafeteria.
> For example Internet and communication companies, for most of which no
> earnings can be forecast (no earnings = no PER, haha !), other fancy
methods
> are used (current projected number of subscribers, of hits per day, of
> recurrent customers... )
> Well, you see how fuzzy my "efficiency principal" is ! Just a calibration
> trick ! :-)
>
> )>Dale Johnson
> >
> >"PGreenfinch" <pgreenfinch@wanadoo.fr> wrote in message
> >news:88p3al$45e$1@wanadoo.fr...
> >> The ERT / Efficient Market Theory sustains that there is only one
> possible
> >> asset price at a given moment, the condition being that the market be
> deep
> >> and liquid enough and fully informed.
> >> The price, with this theory, would result from the stock's
"fundamentals"
> >> - expected profit (future earnings per share),
> >> - rate of return (by reference with the "riskless rate", measured by
the
> >> government bond's rate, to which is addes a risk premium linked to the
> >stock
> >> volatility (standard price deviation)
> >> - a beta coefficient linked to the correlation between the price of the
> >> stock of an individual company, and the prices in the whole market,
> >measured
> >> by a market index).
> >> Well, in practice, stock prices behave more wildly and fuzzily.
> >> Can anyone tell me if my pricing model (that uses behavioral finance
and
> >> gives a much broader potential price range than the ERT) has some
> >> resemblance with fuzzy models, and if that could lead to further
research
> >> using fuzzy logic tools ?
> >> _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
> >> Behavioral stock pricing:
> >> http://perso.wanadoo.fr/pgreenfinch/
> >>
> >>
> >>
> >
> >
>
>

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