# Earthquake Analogies, from anonymous

March 9, 2015 |

One of the main lessons learned from this website is to look for reasonably quantifiable concepts from other fields to try and apply them to time series of market prices.

The general problem is that the many other fields are dealing with physical phenomena with much greater certainty than the vicissitudes of price variation.

The two enduring things I continue to research ( in vain thus far ) are the measurement of Earthquakes (magnitude, duration, distribution et.al.) and the concept of Allometry, in particular as it relates to tree & branch growth ( non linear horizontal versus vertical growth of two quantities with ever changing influences surely is a reasonable basis for time and magnitude studies in markets)

It is the first that will be mentioned thus forth in this post. I mention here just one subset of the studies, some similarities between the study of Earthquakes and markets:

1. The time of the day that an Earthquake occurs in relatively built up population centres is very important ( more will die at 10 am in a given office building than at 9 pm). There is merit in studying the after effects of market moves at different times of the day. (ensuring that one focuses on the entire distribution- not just big or small)

2. Magnitude and duration of Earthquakes. The mathematical brigade has started now to formularise relationships between magnitude and duration of very large samples of smaller quakes - the current leading edge seeks to parametrises formulae in a recursive manner to best fit previous data - obviously, the out of sample is poor.

There is some modicum of value in time and magnitude studies in prices. The world of price change though is best approached, in my experience, with the use of blunt tools ( market is up or down by an amount more or less than some reference point then add non linearity for forecasting).

3. Distance from the Earthquakes centre - the further away the better! In markets, are moves of a given magnitude and/or time more or less predictive a given amount of time from the open.

4. Geology of ground and quality of building construction: Poorly constructed structures built on mud come down easier. In markets - well two streams here; the first being the Chair's often mentioned 'base of operations' and the second related to some quantifiable measure of stability in the market - perhaps something to do with its 'state' vis-a-vis bonds et al. This link is instructive.

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