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Liron comments on A proposed inefficiency in the Bitcoin markets - Less Wrong
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If you were a quant, you would know that random walks on a log scale (geometric Brownian motion) are what people normally use for asset prices. It's what's beneath Black-Scholes, for example. An additive random walk can go negative, which prices can't, but a log random walk is always positive.
(Also note that the fact that the EV is higher tomorrow than today isn't that meaningful, because of time discounting- if the EV tomorrow is the same as the EV today in nominal terms, you should sell and buy something that's expected to go up. How does the expected future growth rate compare to other opportunities?)
Ok, I admit I was ignorant of this. I just observed that the graph in the Wikipedia article for "Random Walk Hypothesis" was linear-scale. Thanks.
What made you believe that the Wikipedia version of one article gives you an accurate understanding of the complex formulas and computer models that today's quants use?
Why I wrote the article:
It's plausible that quants' methodology breaks down in sufficiently unusual markets. In particular, markets with huge volatility.
I want to propose the object-level idea that efficient markets should show a drag on price movement with respect to expected-value movement.
I would doubt that there aren't other markets with huge volatility. Certain options are probably high votilite right after related news items get posted.
On the other hand it might very well be possible that there are effects that you can find. There are quants that trade bitcoin but it's not a big market from a quants perspective
It might very well be that the particular trading algorithm that mtgox uses creates market effects that usual markets don't which are predictable when you throw the right math at it.
Personally akrasia was the only reason why I didn"t invest into bitcoin 9 months ago. I think that while it was possible that bitcoin might lose all it's value, the chances that it would get a multiptude of it"s value where high enough to counteract it.