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Market Measures

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Conditional Probabilities and Consecutive Up Days

Market Measures

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Conditional probability is a way to look at the probability of an event in the context of known information.

We tested whether it is feasible to use conditional probability to forecast SPY returns: given that SPY had n up days, what is the probability that SPY will have positive returns on the day n+1?

We tested this for n = 1, 2, 3, 4, 5 days and found that the conditional probabilities hovered around 50% in all cases, meaning that the market has virtually no memory on daily timescales.

Tune in as Tom and Tony walk through this information further!

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