Technical and Quantitative Equivalence…& Myopia

… consider the following statement that might be found in a typical technician’s newsletter:

The presence of clearly identified support and resistance levels, coupled with a one-third retracement parameter when prices lie between them, suggests the presence of strong buying and selling opportunities in the near-term.

… Contrast the above with the following statement which might be found in an academic finance journal publication:

The magnitudes and decay pattern of the first twelve autocorrelations and the statistical significance of the Box-Pierce Q-statistic suggest the presence of a high-frequency predictable component in stock returns.

Both statements are, in fact, saying the same thing: using historical prices, one can predict future prices to some extent in the short run. But because the two statements are so laden with jargon, the type of response they elicit depends very much on the individual reading them. […] because the semantic differences are so great, the authors of the two statements will probably never see how they might both have benefited from each other’s insights.

-Andrew Lo, “The Heretics of Finance”

Andrew Lo is such a hoot.

[Lo have used these hypothetical statements before in earlier papers to illustrate linguistic gaps and cognitive capture.


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