Is the stock market chaotic? Or is it possible to predict the stock market using data mining techniques?

Question

Is the stock market chaotic? Or is it possible to predict the stock market using data mining techniques?

Answer 1

The market has some random behavior, but it also reacts in response to a large set of stimuli.  Mathematical chaos is determined by a simple function with a complex and input-sensitive output.  The stock market would better be described under complexity theory, the compliment to chaos theory, that describes a system with a very complex or infinite amounts of input, but nonetheless shows a somewhat orderly and stable output.  The effect is similar, however, in that both are difficult to predict.

The problem with predicting the stock market, in addition to the infinite amount of variables (including aspects of human psychology) as input, is that it has a self-determined unpredictability to it.  In other words, when people try to predict the market, they end up changing it.  So if you are trying to predict the market, you also have to include as a variable the effect of all the other people who are trying to predict the market.  You can see how this becomes an infinite cycle of trying to predict what other people are trying to predict, when their answer changes depending on what they think you are trying to predict, but if they consider that you are trying to predict what they are trying to predict  you are going to predict based on what you thing they are going to predict..........

Ultimately, the market is unpredictable because of this prediction paradox.