Trying to predict market behavior is a thankless job, unless you are paid handsomely to do it regardless of the outcome.
Given that getting it right better than chance has such a high payoff, so much money and so many bright minds are already thrown at the problem as to make any model (including the delayed reaction model you are suggesting) that does not consider the resulting feedback completely useless. And these bright minds with resources to spare surely try to take this into account, resulting in multiple levels of feedback. Due to the competitive nature of the enterprise the algorithms employed to squeeze any useful prediction are kept secret, so mapping the market territory is probably one of the lowest payoff-to-effort ratio problems out there, unless you are a market mover and can game the system, in effect creating the territory to match your map, and know how to skirt the insider info laws.
Of course, there are plenty of cases where people/organizations manage to beat the market in the short term, and comparatively few cases where they beat the market consistently, just like someone always wins any given lottery. In the hindsight these people (Soros, Buffett etc.) may sound like geniuses, and maybe some of them are, there is no way to know.
In the hindsight these people (Soros, Buffett etc.) may sound like geniuses, and maybe some of them are, there is no way to know.
Buffett has been so good for so long that the only plausible way it could be random chance is if he secretly possesses a doomsday device that he activates whenever his investments go sufficiently sour.
Agree for most other successful investors, though.
The Blue Eyes Puzzle (solution) depicts a paradox: people engage in coordinated action despite having no new information, when "I know you know he knows" reaches a critical mass. Apparently the formal system invented to address this is called Common Knowledge.
Duncan Black complains:
The typical, compelling, explanation for this sort of thing is herd behavior. In the absence of new information, the market is modeled as a random walk, and when the amplitude of its swing happens to get high enough, people see a trend, anticipate it continuing, and thereby create the trend and cause a massive swing.
I wonder if you could instead model stock market swings, or other seemingly unmotivated coordinated activity, as common knowledge reaching critical mass. Say new information was injected into the market two weeks ago, and it took that long to reach a blue eyes catastrophe.
I have no evidence for this other than random pattern matching.