The Axiomatic Trader: Latent Regularity, Information Budgets, and the Canonical Form of a Quantitative Investment System

Systematic trading rests on one article of faith: that regularities found in the past persist. This paper does three things. First, it states that faith as five axioms, each a commonplace practitioners already accept: (A1) a decision may use only what was known when it was made; (A2) what looks like the market changing its rules is the market changing its unobserved state, the machinery being the same in every era; (A3) the future may replay stretches of the past, though not in history's proportions; (A4) states persist for a while; (A5) whatever predictability exists is slight, even for a rule that knows the state. What turns these into axioms is quantification, and the quantities are de...

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