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MIT Finance Lecture: Finance Is Harder Than Physics

21,844 views • 3 months ago •via X (Twitter)

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an MIT professor who taught both physics and finance told his class something none of them expected "finance is harder than physics" not as a joke. as a mathematical statement in physics, the laws don't change. gravity works the same today as it did a billion years ago you can run an experiment, get a result, and repeat it forever in finance, the moment you discover a law, the participants learn it too and their behavior changes the system you just measured in physics, electrons don't read your paper and start moving differently in finance, traders do. every published edge gets arbitraged away by the people who read it this is why quant models have a half-life and physics equations don't Newton's laws: 300+ years and counting Long-Term Capital Management's model: worked perfectly until it didn't, lost $4.6 billion in 4 months the system you're modeling is aware of you modeling it that's not a solvable problem. it's a permanent condition and the quants who survive are the ones who build for it instead of pretending it doesn't exist > this lecture: MIT finance series, free, public, 53 seconds > LTCM collapse: 1998, Nobel Prize winners, $4.6B loss > Renaissance's solution: never stop researching, replace signals before they decay > average lifespan of a quant signal: 2-5 years before it's crowded out retail builds one strategy and trades it until it breaks quant desks build a research engine that produces new strategies faster than old ones die that's not a difference in skill. it's a difference in understanding what game you're actually playing full breakdown in the video below

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18,933 views • 1 month ago