The Math Equation That Beat Wall Street | Jim Simons vs. EMH

An exploration of the math that Jim Simons used to beat the market. Learn more about our no-code quant bot design course here: https://chaostheory.institute/courses...

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The Efficient Market Hypothesis (or EMH), developed by economist Eugene Fama in the 1960s, and explored in detail in his book entitled “Efficient Capital Markets", published in 1970, is a cornerstone theory in finance that suggests that all available information is already reflected in current stock prices.

The strong variation of EMH discounts technical analysis and even fundamental analysis of having any predictive power in the markets, because all information, including public information (such as historical data), as well as private information (such as insider trading), is already factored into the current asset's price. Therefore, you could never gain a predictive edge which would allow you to outperform the market as a whole over the long run because prices adjust instantaneously to new information.

This means that attempting to 'beat the market consistently over the longer run is futile". The market is "informationally efficient" which makes it unlikely you'll be able to gain an upper hand on it.

However, Jim Simons, a quant trader and mathematician set out to prove this theory wrong. Here believed that there were anomalies in the market and he started a hedge fund called Renaissance Technologies and a portfolio called the Medallion Fund to prove EMH wrong.

Today, Jim Simons is the 49th richest person in the world because his stock trading algorithms could spot anomalies that nobody else could.

This is a story about a quantitative analysis and how one man used this technique when trading stocks, commodities and currencies.

😲 Resources mentioned in this video:

OfDollarsAndData: https://ofdollarsanddata.com/medallio...

The Man Who Solved the Market: https://www.amazon.com/Man-Who-Solved...

Forbes Billionaires: https://www.forbes.com/billionaires/

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Chapters

0:00 Using technical indicators
1:30 Efficient Market Hypothesis
3:49 Jim Simons
4:53 Entering the financial markets
5:14 Medallion Fund and mean reversion
7:18 Predictions math
10:28 Quant success

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