It has been a surprisingly busy post-summer. I am slowly but surely progressing with a significant release of LiuAlgoTrader, which supports Crypto trading. Few more weeks. Stay tuned.
I decided to deviate from my previous chain of posts. I want to share some raw thoughts on Emergent properties in Financial Markets.
Here is an excellent definition for “Emergent properties”: Emergent properties are properties that manifest themselves as the result of various system components working together, not as a property of any individual element.
Emergent properties are often discussed when analyzing complex systems or a combination of several systems. Mark Bedau gives a Circle as an example of a nominal emergent property of a set of points. He also differentiates between “weak” vs. “strong” emergence.
Emergent properties are rooted in the narrative of modern physics and particularly in Quantum Mechanics. Some say that Quantum Entanglement proposed by Einstein, Podolsky & Rosen (EPR) in 1935 is so elementary that space-time may be an emergent property of quantum entanglement.
Entanglement & Correlation are interesting concepts brought into the computation world of Quantum computing. Keep that in mind as you read my musings further.
I recently listened to an exciting book by Anil Seth. His conversation with Sean Caroll, on Conscience as an emergent property, is inspiring. If you don’t listen to Sean Caroll’s Mindscape podcast already, I highly recommend it.
Enter Financial Markets.
Financial markets refer to any marketplace where the trading of securities occurs, including the stock market, bond market, forex market, and derivatives market, among others.
Financial Markets are complex: There are 8,000 public companies in the US, Over 2,000 ETFs traded in the US, thousands of more assets in futures, derivatives, money markets. Multiply by country, and the globally interconnected Financial Markets span hundreds of thousands of assets.
Such a complex system is bound to have emergent properties. But which are those?
Is Correlation an emergent property, or is it as elementary as quantum entanglement?
What Macro properties are we missing when we’re doing our local trading at our local exchange?
Is there an equivalent of a circle that we’re missing by not connecting the right dots?
Could market flux & crashes be an emergent property that we apply hindsight biases?
I have no answers, but I think there’s something out there.
