Abstract
Investors and financial analysts employ various mathematical and statistical methods to forecast stock prices. An investor or a stock analyst with a superior forecasting method can harvest huge and almost riskless profits. This is the reason why so many people are investing time and money enthusiastically in developing methods to correctly predict future stock prices. In this note, we demonstrate that even if a sophisticated investor or a stock analyst has superior (but not perfect) forecasting methods, she/he can suffer from a large false positive error. We provide a simple formula for the probability of the rate of False Positives, and analyze its properties.
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