The Omniscience Model: Equation Selection

Abstract

We are living at the intersection of massive computing power and the nearly unlimited flow of financial information. Stock market returns are based on the change in price from one period to another. The business plan of nearly all equity funds is based on having high conviction regarding whether holdings will go up (those that hold long) or down (those that short). While the business plan is based on conviction, success is based on being correct. Statistical tools and theories are available to help understand relationships, such as correlation, as well as explain divergent behavior, such as mean reversion. Other fields such as physics and biology utilize models that could be relevant to prediction of future events. This paper takes the formulae from the various fields and sorts them to determine which may be useful in the prediction of stock prices versus those that are descriptive and evaluative.

Keywords: Stock Market, Stock Price, Stock Price Prediction