Five Years of Phase Space Dynamics of the Standard &amp; Poor’s 500

Veniamin Smirnov,Dimitri Volchenkov

doi:10.2478/amns.2019.1.00019

Abstract

Abstract Inhomogeneous density of states in a discrete model of Standard & Poor’s 500 phase space leads to inequitable predictability of market events. Most frequent events might be efficiently predicted in the long run as expected from Mean reversion theory. Stocks have different mobility in phase space. Highly mobile stocks are associated with less unsystematic risk. Less mobile stocks might be cast into disfavor almost indefinitely. Relations between information components in Standard & Poor’s 500 phase space resemble of those in unfair coin tossing.

Highlights

In the famous book "The intelligent investor", Benjamin Graham had advised not wasting time at forecasting how the market will perform in the future, as markets are fickle and market prices are largely meaningless
We study predictability of market states and stock prices of individual companies by reconstructing a discrete model of Standard & Poor’s 500 (S&P 500) phase space, in which every component of S&P 500 is characterized by the daily return and roughness of the stock, and the market state corresponds to a certain distribution of stock in phase space
We have reconstructed the discrete model of S&P 500 phase space and studied predictability of the cells and individual S&P 500 constituents

Summary

Introduction

In the famous book "The intelligent investor", Benjamin Graham had advised not wasting time at forecasting how the market will perform in the future, as markets are fickle and market prices are largely meaningless. Instead, he taught that the intelligent investor should focus at the diligent financial evaluation of company’s market value, buying stocks that are clearly underpriced in the market. He taught that the intelligent investor should focus at the diligent financial evaluation of company’s market value, buying stocks that are clearly underpriced in the market These opportunities are hard to find, but worth waiting for [1]. The companies selected by the S&P 500 committee are representative of the industries in the United States economy

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Conclusion