Financial Chaos

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Financial Chaos

On October 22, 2006, Posted by , In finances, With 1 Comment

The new trend, coming from the early nineties really (see this), in financial analysis is the application of chaos theory to the forecast of financial markets. In fact, almost 9% of the financial portfolios all over the world are now managed by means of these techniques.

What is troubling me is that as machines are overperforming the human being in this “stocks game” more and more the decisions on portfolio structure will be made by computers rather than by “sometimes-I-make-mistakes-humans”. What would be happening if the trading is 100% made by computers then?. Will we see something similar to the 1987 crash?, when the mass (miss)use of computer trading systems blowed the market. Will we see that the difference is then the mistakes are still being made by human beings when programming the forecasting models? or, if it happens to be a single model monopolises the trading systems then the system collapses when a good deal is spotted?.

Please, comments in this one! Ta!