Sherwin Lott

Sherwin Lott
Job Market Paper

Redefining Information and Efficiency to Understand Technical Analysis

Encrypted data is hardly informative without a key, yet the efficient market hypothesis suggests that all complex patterns and interactions between prices are accounted for. Economics, unlike probability, must recognize costs and therefore distinguish between observing pieces of information and analyzing their many interactions. (1) We generalize sigma-fields to families of events and define information more broadly as knowledge about optimization solutions. (2) This provides a new framework for efficiency hypotheses and theorems. (3) We illustrate how complex patterns arise from ``variably diffuse information" that only technical analysts can aggregate indirectly, changing the informational behavior of prices.

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Other Research

Perturbations in DSGE models: An odd derivatives theorem

(Journal of Economic Dynamics and Control, 2019)

This paper extends a classical result in portfolio theory about the effect of risk on value functions to its effect more generally on policy functions. If odd moments of shocks are zero up to some order, then the odd order marginal effects on value and policy functions of introducing these shocks are zero as well. Mathematically, all coefficients of corresponding odd order in the perturbation parameter are zero. If shocks are symmetric, e.g. normally distributed, then this holds for all odd orders. The main theorem (1) generalizes past results on perturbations and unifies their economic intuition, (2) improves the computation of stochastic coefficients, and (3) illustrates how to deriveĀ propertiesĀ of high order perturbations through simple induction.

Interests

General equilibrium theory with applications to: micro finance, information aggregation, and computational macro.

Email

lotts@sas.upenn.edu

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Advisors

Jesus Fernandez-Villaverde