Alright, I'll bite, but obviously we're hand-waving definitions on many fronts.
I'll argue that equity markets are not good platforms for crowds to judge the fair market cap of companies (or the NPV of cashflows). Most participants have an incentive to maximize profits or preserve capital subject to some risk appetite, and very few are actually interested in pricing companies; instead participants are mostly interested in what they think the others players are doing.
If we were to crowdsource what movies HN users enjoyed, that could work. However, if we said that you would be paid for your vote only if you were in the same group as the majority, then suddenly you aren't voting honestly... you are trying to figure out how other people might vote, and our final result is the aggregation of a lot of game theory (plus a few naive honest players who get picked off by the rest of us).
Therefore, equity prices are not a democratic vote. Prices are not a weighted sum of your vote times your conviction (nor are they your vote * conviction * wealth). They can break down to a battle of speculators trying to outwit each other and exploit any flaws in the market or others' thought processes.
D. E. Shaw Research recently set a record simulating a single protein molecule in surrounding water for about 1 millisecond using first principles from computational chemistry, and I suppose that means they have a long way to go before fully modeling protein folding because the aggregation function of all those forces are complex. However, I'd bet it would be much harder to aggregate all the market participants and all their incentives from first principles to step 1 millisecond forward in live trading time.
I'm not saying you can't make profits. Obviously people have for a long time found relationships here and there that can predict future price movements. I'm saying a formal aggregation model that would let us fully compute and Turing-decide future prices, even if we had all the relevant inputs, seems complex.
Speculators continually enter and abandon the market. Without adding information to the system, they just add volatility without driving the price in any direction.
The price is thus the sum of people that know or believe something, weighted by the resources the have to bear.
I'm not sure I understand why you need or want the price to be "democratic"? What problem are you trying to solve here?
M-W defition 2(b) of transparent : readily understood
It seems clear to me that the pricing mechanism is not readily understood by anyone, hence the ability for quantitative models to make money and yet still not be pure money printing machines (with the exception of HFT which does not claim to understand the general pricing mechanism, only short time span deviations from prior prices regardless of whether the prior prices are "wrong" or "right"). Further, the quantitative models I'm aware of price things on a relative basis : "given that we derive these general market parameters, things should be priced like f(x)", as opposed to "this company is worth X dollars". That fundamental analysts have jobs while still differing widely in their opinions suggests to me that the way to price things on an absolute basis is not well understood.
The underlying aggregation function may be simple, but we can't know that since its not transparent. My vote there goes towards not simple though.
Its most certainly democratic in some ways, though its unclear how votes are allocated. One per individual? One per trade? One per dollar? One per unit of influence?
I think the idea of crowdsourcing from a subset of the market could provide some edge, but think this is the wrong subset.
The allocation of price impact has to do with the information behind the trade. Call that your "vote".
You can ignore HFT or whatever. It just adds volatility and not information to the market. If you want, imagine you are only looking at EOD prices or even EOM.
I still don't understand how an iterated auction based on a limit-order book is anything BUT simple.
The interesting thing here is to see whether a community of opinionated elite nerds can do a better job of predicting the future direction than the general public / analysis / whoever. Speaking of which, have you logged your predictions yet?
I already did. The trades were reported to the exhange (as all trades are) in order to contribute to price discovery, and the direction of the trade contributed to the pricing pressure (either above or below).
No, I don't. My interpretation of the situation (which is probably incorrect) is that I'm asking you to share some wisdom and insight, and you're responding with snide remarks about the nature of stock exchanges.
Just to be fair to everyone entering things into this form: After you're done, you don't get to see any aggregated predictions, only a "thank you" message (which I found disappointing)
These are mature stocks, which are basically a random walk, unless you have some insider info.
What'd be really interesting would be if you got a couple thousand speculative plays on there, and allowed people to only submit on the industries they knew something about. Although that'd probably just lead to people only submitting their pet stock as "going to the moon!"
1. Every stock is a random walk.
2. Insider info for smaller companies is much more valuable then larger companies.
3. Speculative plays would make this even more boring, because then everyone makes wild guesses at the future value of a company they have never heard of.
Every statement you made was a complete misunderstanding of my statement. Including the sarcasm, I was being genuine in my praise.
Briefly, the random walk factor is less of an issue for speculative stocks because they either make it as a business, or don't. That's not a random walk. And I really don't understand why you're so miffed.
It's more an experiment on chaos theory and dart throwing than "Predictions". I recommend you look at the fundamentals and aggregate the EPS forecasts in relation to the ROE to get a better idea as to where they should be in a year's time. On top of that you need to factor your economy and China's.
You're right I won't. It's like trying to predict the next lotto numbers.
Fear and greed fuel the market in the short term, so even if you got close 2 days before the deadline, a scare in the market would throw off all your predictions out the window.
All you can really predict is what you believe a stock will be worth (intrinsic value) assuming the EPS forecast is fairly correct, the economy behaves ok and that china doesn't cock up.
edit: I do appreciate anybody taking time to run an experiment though! That's why I voted up your post.
The biggest issue with this design is that there's no incentive to put in effort for better predictions.
Take it to the next level; design this for Mechanical Turk (https://github.com/aantix/turkee), and make this offer; for each prediction received, get a nickel. If you're on the right side with your prediction, receive an extra nickel. If you're within 0.5%, receive an additional nickel.
Not enough people utilize the "bonus" feature of Mechanical Turk as financial incentive to increase the quality of data they receive. You don't have to pay everyone the same. Reward better input.
I'll post a follow-up, but I'm not going to release people's individual predictions publicly in case I inadvertently embarrass anyone. I'm probably going to contact the winners individually to alert them of their insight and luck.
But yeah, I'll post a detailed analysis in 6 months' time. If people then want to contact me directly to get their data then they will be able to.
You should post aggregate values in a few days as well.
I hope you're also storing timestamps with the submissions. Just guessing, but I'd bet any predictions made on 04/30 will correlate much better than those made today.
Wasn't there just a story linked here the other day about the advice given to the newly minted (back at the IPO) Google millionaires? As I recall it said;
Don't try to beat the market.
Don't try to beat the market.
Don't try to beat the market.
are you planning on removing blank entries (those set at 0.00). i, for one, only filled out predictions who i actively follow in the market to keep "uneducated" data from entering your prediction. maybe a good strategy would be to remove the lower and upper ends of the curve as well...
