NZ Firm Discovers Financial Markets Work as Electric Motors
Tuesday 17th August 2011.
Investment services company MarketsDNA today announced that it has discovered that the financial markets work like electric motors. The company claims the discovery has big implications for the world’s trillion dollar Hedge Fund industry.
“The financial markets are electrical,” says MarketsDNA CEO Branton Kenton-Dau. “An electric motor needs a power supply, a frequency at which the power is delivered and some powerlines. We have found the equivalent of all three in the financial markets.”
The company claims the power supply is generated by the intention of investors. This creates an electrical charge that drives the market.
The company also claims to have found that there is a delay, or buffer, between investor intention and its manifestation. “It’s this buffer,” says David O’Reilly, MarketsDNA’s Senior Advisor, “that enables better prediction of price movements.”
“The market responds to its power supply, and we already know what the power input will be next week, next month, or even next year,” says Kenton-Dau.
The company believes their discovery can help investors make better decisions. In particular, returns from the MarketsDNA approach could help to reduce tail risk. “Tail risk occurs in times of market stress like the 2007 Financial Crisis,” says O’Reilly. “When the market falls, previously uncorrelated strategies fail as investors cannot exit their positions. As the MarketsDNA’s approach has a very low tail-risk correlation with the market our discovery helps hedge fund managers to succeed during catastrophic market events.”
“Once the frequency at which power is being delivered to the market is known, it is possible to produce tail-neutral returns for investors in that market,” says Kenton-Dau. “As long as the power flows, the motor will work. When the power drops you reverse the position or exit.”
The company is currently in discussion with several leading hedge funds to commercialise their findings.