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Tom Ryan on Runs in Geology and Markets
On the question of runs and memory effects, vs. Brownian motion, the short version, it seems to this sun-baked spec, is, "It depends."
Note that in geology, we can get higher grade concentrations of ore simply because of randomness, and we can get higher grade zones of ore because there is an underlying structure controlling said concentration. To answer this question we often have to take a closer look at various scales. After all, what is so special about stock market changes from close to close? In and of itself a run of positive or negative changes for that one particular time scale may or may not tell you much, but in conjunction with some analysis of other time scales or other cross-market correlations one may find some chunks of ore laying around.
The string of down days just prior to the Iraqi invasion where there was a coincident run of down opens along with the down days comes to mind. or with the recent run (now terminated), the fact that all of the afternoons were so positive makes one wonder if the actual close-close changes are more artifact than indicator. Kind of like a map indicating a linear zone of high grade ore that upon further close inspection, is found to be associated with a particular geologic fault.