Shiller's Fluctuations vs. Temporal Changes

Shiller’s Fluctuations vs. Temporal Changes
Robert Shiller was not only one of the few to challenge the efficient market theory, as early as 1981 he was also the first to connect fundamental data with market data.
His paper on ‘The Volatility of Stock markets Prices’ published in 1987 uses dividend data and real interest rates to seek evidence that true investment value changes through time sufficiently to justify the price changes. His paper concluded that most of the volatility of the stock market prices appears unexplained.
Shiller’s volatility or fluctuations prove that behavior of markets is not normal. Non normal distribution series is a widely followed proof of inefficiency in prices. He illustrated his fluctuation case (Fig. 2) where he plotted the fluctuations of market prices compared to a fundamental value. The fluctuation in real market were simply too large to explain.
One of the basic ideas of Orpheus performance cycle is that performance is cyclical across time frames. If performance is studied on a larger time, it has less volatility and when it is studied on smaller period it has higher volatility. The rate of change is more volatile at a smaller time frame than at a larger one. We plotted these changes in performance of various degrees together and we could generate a similar illustration (Fig.1) like Shiller’s three decade old paper.
This opens up a potential debate whether it’s the temporal changes that cause market volatility and inefficiency. If we are correct about this than time cycles become a science, hedging can be done profitably and performance (absolute or relative) can be pinpointed.
This week we have introduced the Jiseki integrated performance cycles on INR ETF (XEN) and DOW. The XEN (Fig. 5) cycles are still pointing lower suggesting weakness on Indian Rupee and Dow Jiseki spectrum of cycles (Fig. 6) are still positive and up. DOW 30 remains a relative outperformer and still in absolute buy mode. Our negative case on Sensex has a key hurdle at 18,000. Sub 18,000 get ready for more fireworks.