Less Wrong is a community blog devoted to refining the art of human rationality. Please visit our About page for more information.

Cyan comments on Why the tails come apart - Less Wrong

116 Post author: Thrasymachus 01 August 2014 10:41PM

You are viewing a comment permalink. View the original post to see all comments and the full post content.

Comments (90)

You are viewing a single comment's thread. Show more comments above.

Comment author: Cyan 02 August 2014 11:39:15AM *  3 points [-]

market performance in sectors is always correlated, but you don't see it

The problem is the word "always". If I interpret it to mean "over all possible time scales" then the claim is basically false; if I interpret it to mean "over the longest time scales" then the claim is true, but trivially so given that sector performances are sometimes correlated.

We won't get to an explanation by just thinking about probability measures on stochastic processes. What's needed here is a causal graph. The basic causal graph has the financial sector internally highly connected, with the vast majority of the connections between lenders/investors and debtors/investees passing through it. That, I think, is sufficient to explain the stylized fact in the grandparent (although of course financial researchers can and do find more to say).