SD Modeling and American Stock Market Indexes

[jnoble1@mmm.com]

Two time series that get a great deal of analysis by professional and
amateur investors alike are the Dow Jones Industrial Average (DJIA) and S &
P 500 composite stock market indexes, which, along with a few others,
represent over-all American financial market price levels. Im assuming
that everyone tracking financial market activity has some kind of model
"explaining" their movements; from crude mental models inter-relating
various macro-economic indicators, business annoucements, and geopolitical
events to the econometric statistician trying to predict short-range trends
to the technical analysis chartist forecasting daily/hourly movements. I
was wondering if any work has been done with SD to create a causal model
explaining the behavior mode(s) of these indexes at some higher level of
time aggregation, presumably incorporating some of the major American
economic indicators among other variables.

Jonathan Noble
3M Knoxville Supply Chain Supervisor
ph. 641-828-7000 ext. 427
Tri: 789-1427
e-mail: jnoble1@mmm.com

[Sean Morgan]

Jonathan asked about using System Dynamics to understand the equities markets.

It turns out that a fellow MIT Sloan graduate and I have started an investment advisory
firm which is doing just that. We are using System Dynamics as the foundation for
building quantitative models for stock selection and portfolio management.

In September of last year, we began running a real portfolio using our initial model and
the results have been very encouraging. I would be happy to chat with anyone who has
an interest in applying System Dynamics to the markets.


Sean Morgan
Jantz Morgan LLC
www.jantzmorgan.com
morgan@jantzmorgan.com