Another interpretation of the FT experts opinions is more empirical in
nature. If one looks at the history of stock market returns (at least here
in the U.S.), there has only been one instance of four consecutive years of
negative returns (1930-1933 as I recall, as measured by the S&P 500 market
index). While it is true that stock market returns measured at relatively
high frequencies are often seen as "random" (excuse my imprecise use of this
word) and hence the gamblers' fallacy might be seen as applying, in fact
returns measured at longer frequencies do show a degree of linear
predictability in the first moment. This is now well known among stock
managers. Thus if one simply looks at the empirical distribution of annual
returns, the odds are pretty small that we will have another year of
negative returns. There are also good economic reasons to think that returns
are more likely to be positive than negative in 2003, which I suspect are
also driving the FT predictions (though I did not see the article). From an
econometric perspective, this is a rather vacuous prediction. Thanks.
Regards,
Mark
----- Original Message -----
From: "Ray Thomas" <[log in to unmask]>
To: <[log in to unmask]>
Sent: Tuesday, January 07, 2003 3:58 PM
Subject: Re: Gamblers' Fallacy
> An interesting example of the way the statistics is corrupting the English
> language - and hence patterns of thought. Allan seems to be thinking
terms
> of 'statistical independence' that has a meaning for statisticians that is
> not shared by the rest of the English speaking population.
>
> The FT experts take a wider view. Might be called a systems approach.
The
> FT experts know that some people have money they need to invest. If the
> stock market is faltering then they put it into, say, property. But when
> it appears that the property market is faltering, as many in the UK
expect,
> then they will put the money back into stocks where the expectation of
> further faltering is lower.
>
> There is no 'Gamblers Fallacy' here. The FT experts are part of the real
> world. Like it or not, 'gambling' on the stock exchange ia a major
> component of the world's economic system. It is to be hoped that
> statisticians can occasionally recognise other professsional competencies
> relevant to this sphere of human activity.
>
> Ray Thomas, Social Sciences, Open University
> Tel: 44 1908 679081 Fax 44 1908 550401
> Email: [log in to unmask]
> 35 Passmore, Milton Keynes MK6 3DY
>
> **********************************
>
>
> -----Original Message-----
> From: Dr Allan White [mailto:[log in to unmask]]
> Sent: 07 January 2003 18:06
> To: [log in to unmask]
> Subject: Gamblers' Fallacy
>
>
> Colleagues,
>
> Statisticians may be amused (or upset) by a recent article in the
> Financial Times last weekend. In the `Money' section, six `experts'
> from the asset management industry were providing forecasts for the
> stock market for the coming year. Two of these `experts' appeared to
> be saying that the market was unlikely to fall far this year because
> it has already suffered three bad years in succession, which made a
> fourth bad year statistically unlikely.
>
>
> --
> Dr. Allan White, Statistical Advisory Service, University of Birmingham
> Tel. 0121-414 4750 or 44750 (internal), Email [log in to unmask]
>
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