Contributions :

5. Fun in behavioral finance

 On Dec. 10, 2002, Winnie - Le Spéculateur Cuisinier          (www.contrarien.com) jumps from "Stock image" to     "Imaginary value"

I took the clue from Peter Greenfinch's stock image theory in order to
create another one:

The Generalized Theory of Markets,
or complex values theory.

Reminder: a complex number c is made of a real portion and an
imaginary portion b.

c = a + i*b, where i is the square root of -1.

In my theory, a stock price is a complex number, with a real portion
and an imaginary portion.

• The *real* portion corresponds to the fundamentals, the
things we can touch,
the actualized dividends.

• The *imaginary* portion corresponds to the concept of
image value, "the stuff dreams are made off" (*),

(*) to quote Bogart at the end of The Maltese Falcon.

In applying this to the S&P500:

S&P 500 value = real value + i * imaginary value.

S&P = a + b*i

real value = 1 / dividends return = 1/1.5% = 66.66

I discount the dividend like an annuity, as nothing allows me to
suppose it is going to rise or fall.

On the other hand, the S&P will live on for a lot of years.
with an individual stock, the calculation would be harder and
more
hypothetical).
The S&P price, as it can be observed, is the module of the c
omplex:

S&P price

= root (a^2 + b^2)b

= root (S&P price^2-a^2)

= root (S&P price - 66.66)*(S&P price + 66.66)

<> 897 (today quote)

The S&P imaginary value is 897 ! Its real value is 66.66.

We can conclude here that the S&P value is nearly entirely
imaginary.

From that, all scenarios are possible, a rise, a fall ...everything
and anything,as the S&P is essentially imaginary!

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