Tuesday

Market Forecasting


Prediction of the
Financial Forum and Real Economy


Forecasting paves the way for a wholesome program of investment, whether in the financial markets or the real economy. To this end, the techniques of prediction run the gamut from the simple and casual to the complex and formal.

On the scale of rigor, the low end of the range includes a hunch by an investor that a newborn technology will create a vibrant market and render obsolete a mature industry. Meanwhile the opposite end of the spectrum is showcased by a software agent that predicts the price of a stock and learns from its mistakes in order to improve its performance over time.

An investor who wants to divine a market of any sort faces a daunting task. The stumbling blocks include the whims of human actors and the flukes of natural forces. A case in point is a ramp-up of the stock market to ditsy heights by a horde of berserk traders. Another sample involves the smackdown of a regional economy by a monstrous earthquake that knocks out a swath of manufacturing plants and power grids.

In a world racked by chance and chaos, the hapless investor is hard-pressed to peer into the future with any measure of confidence. Even so, the lack of clarity does not mean that anything goes. On the contrary, anyone with a smidgen of sense knows that some things are more likely to crop up than others.

In that case, a glimpse of the future is a matter of degree rather than category. For this reason, the meaningful question is not whether prediction is feasible, but to what extent the task can be achieved.

In a way, the forecaster encounters the same type of challenge in selecting a technique for prediction. More precisely, the apt approach happens to be relative rather than absolute. The best choice of method depends on a bunch of factors including the skills of the user and the thrust of the application.

To begin with, each approach has its strengths and drawbacks. Moreover a given method may work like a charm in the hands of one user but not another. For these and other reasons, the shrewd player weighs a variety of techniques before deciding on the right tool for the job in forecasting a market of any sort.

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