Risky business: Why money markets ignore the rules

"It's a kind of idolatry to think you can write down one equation that will describe accurately the way collections of people behave"

You used to be a physicist. Are there laws of financial markets in the same way there are laws of physics?

In my opinion, absolutely not. In physics you have absolute values. If you want to shoot a rocket to the moon, you can use Newton's laws and the gravitational constant. In finance you can't make absolute predictions. You try to figure out the value of something by relating it to the value of something more simple. If you tell me the price of a one-bedroom apartment, for example, I can give you a guesstimate for a 14-bedroom apartment. Most financial modelling is a more sophisticated version of that.

Is there any predictive model of markets that investors can rely on?

There is, but only for short ...

To continue reading this article, subscribe to receive access to all of newscientist.com, including 20 years of archive content.