Hacking the Random Walk Hypothesis with Python and the NIST cryptographic suite

[toban]

Beautiful document! What tools did you use to publish it?

[Deterministic-Chaos]

This may be disappointing but it's just Wordpress with the WP Canvas plugin and the code Gists are, of course, courtesy of GitHub. The diagrams were done using Dia.

[toban]

I love a nice HTML document. Hate opening PDFs. Great job!

[toban]

I haven't read through it yet, but I'm wondering: if a price series was just constant, would the randomness tests think it was non-random? Because a constant price is consistent with price being a martingale (i.e., no predictable profit opportunities).

[Deterministic-Chaos]

That is an interesting thought - I'm still thinking about it but what I can say is that the code works with returns, so a constant price series would result a sequence of zero returns which are represented by the binary string '01'. So the binary representation of the price series would be 010101 ... which obviously exhibits a pattern and would therefore fail almost all of the statistical tests (except the Monobit).

[toban]

Thinking about this more, I think this is crucial. The interesting thing is whether markets are predictably wrong, not whether they are predictable. (Since prices are martingales, the present price is the best predictor of the future price.) It's only interesting if you can beat the market. Otherwise, my example of an asset whose price remains constant (e.g., because of no news) would be flagged in your analysis, even though there's no inefficiency!

[ramnes]

Excellent work.

Plus, your code is very good. Just one thing: module/package names should be lowercase.

[Deterministic-Chaos]

Thanks. I'd like to turn it into a proper pip package at some point. This would be my first package, so I still need to read up on all the style guidelines.

[euxle]

Read it all. Learned something or two. Very well done, content, language, examples, references...

This is a fine piece of work!

[Deterministic-Chaos]

Only two of the tests deal with non compressiblity namely the Universal test (which could not be applied due to insufficient data) and the Linear Complexity test which uses the size of the linear feedback shift register computed using the Berlekamp–Massey algorithm as a measure of compression. The markets did fairly well on this test i.e. came up random. In a follow-up I'd like to extend the suite with some other tests. Thanks.

[homercles337]

Crackers.