Chapter 1. Introduction—The Value of Information

The Struggle for a Statistical Edge

The equities markets are a zero sum game in the sense that every dollar won must also be lost. This simple fact has far-reaching implications that are sometimes counterintuitive. For example, most investors do not realize that the investment community as a group cannot profit from the rise of a single stock unless the company pays a dividend. This limitation exists because all profit must emanate from buying and selling activity between the investors themselves. Although individual trades can certainly generate a positive return, there is a finite amount of money in the system and the source of that money is the individual investors. The markets are the ultimate ...

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