Market Dynamics

Investors in financial securities are desperate to find an advantage over their competition. Finance professionals often speak about market rotations. Market Dynamics makes their vague allusions a reality. The book presents a system theory approach to the dynamics of financial assets markets. Its purpose is to enable market analysts to describe the behavior of markets using reproducible mathematics that quantify the behavior as a step toward predicting future market behavior. Market...
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Investors in financial securities are desperate to find an advantage over their competition. Finance professionals often speak about market rotations. Market Dynamics makes their vague allusions a reality. The book presents a system theory approach to the dynamics of financial assets markets. Its purpose is to enable market analysts to describe the behavior of markets using reproducible mathematics that quantify the behavior as a step toward predicting future market behavior. Market behavior cannot be predicted with any degree of certainty from past performance. However, underlying all market performance is a distribution of probabilities that governs the evolution of a market in a stochastic fashion. Knowing those underlying probability distributions provides insight into future market movements and enables investors to anticipate market transients within well defined probability limits.There is a lot of fluff posing as investment advice and strategy. Market Dynamics gives no investment advice nor strategy. The book presents an analysis of market dynamics based upon kinetic theory and the properties of the peculiar velocity field. This analysis is meant for professionals and serious students of finance. It applies advanced concepts from analytical mechanics to the study of an asset market. The assets can be any entities bought and sold on a single market by the same market participants. The analysis is not meant to advance the efforts of traders and speculators to enrich themselves through market trades; but instead to identify the fundamental mechanisms operating underneath market transactions. The first chapter is the Introduction. It contains no mathematical analysis. Instead it presents a review of popular literature pertinent to the subject of modeling market dynamics. Chapter 2 begins the analysis, which progresses from one chapter to the next. It presents the state space for the probability distribution that is to be used to model the asset prices and their speeds. Chapter 3 presents the concept of the price velocity and its assumption as a solenoidal field. Chapter 4 simplifies the governing equation for the probability distribution of asset price speeds using the method of moments. Chapter 5 addresses the problem of failure of closure for the moment equations when the method of moments is applied. Chapter 6 introduces the concept of a moving price derivative that follows the motion of market prices. Chapter 7 addresses the price auction model of microeconomics and tries to include the model within the model of market dynamics. Chapter 8 addresses the concept of the rotation of price changes through different market sectors within the total market. Chapter 9 seeks to evaluate the equilibrium states within market dynamics when the price auction model is applied to it. Chapter 10 considers a simplification of the analysis that applies when there are very many assets contained within the market. Chapter 11 shows how market equilibrium is described using eigenvalues and eigenvectors. Chapter 12 considers the transients leading both to and from market equilibrium. Chapter 13 applies a nonlinear closure approximation to the method of moments for another approach to the analysis. Chapter 14 introduces the concept of a price potential function as the driving motive for asset price changes within the market. Chapter 15 more fully explores the concept of rotation of asset prices with a market. Chapter 16 explains conjugate variables in phase space and shows how to evaluate a time series in that context. Chapter 17 presents a predictor-corrector algorithm for modeling price speeds in real time. Chapter 18 concludes the book by showing how to minimize quadratic residuals for developing market indices representative of the total market performance.