How Can A Model Predict What A 'Drunken Psycho' Will Do?

While the market is, in the words of Warren Buffett, a “drunken psycho,” many companies in the big data space are trying to create models off of its behavior.

David Kedmey, president and co-founder of predictive analytics startup EidoSearch, sees the market as more of a black box—meaning he believes it’s more effective for those analyzing the market to study what conditions were like at certain times, look at the outcomes, and forecast from there.

What Does The Market Remember?

“There is no one model that describes financial markets,” Kedmey said in an interview with Benzinga. “In a complex world, you have a better chance of success by looking for times and conditions that are like today, looking at what the outcomes were, and using those outcomes to forecast a range of possibilities.”

That’s why EidoSearch doesn’t build analytical models. Kedmey said since many factors change over time, building models off of fixed relationships doesn’t make sense.

Kedmey prefers to look for “the memories that count.” EidoSearch’s data history goes back to the 1970s for U.S. equities.

EidoSearch’s content-based search product is the brainchild of CEO and co-founder Steven Zhang, whose previous data analysis projects included work on the Human Genome Project and NASA satellite imagery.

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Certainty In Uncertain Times

Kedmey says EidoSearch’s forecasting is useful in times of market uncertainty like today. He pointed to lack of clarity surrounding the Trump administration’s policies as a prime example.

“We’ve made it possible to quantify uncertainty and risk in a dynamic way because we threw out the models,” Kedmey said. “In physics, gravity doesn’t change much from day to day, but in social datasets like finance, that just doesn’t work.”

Hedge Fund Clients

EidoSearch sells its forecasting services to portfolio managers at financial institutions in the form of seats to a visual web service. Kedmey refers to the product as “decision support,” which allows users to find out when a stock that is performing unusually has acted in that manner in the past.

EidoSearch also markets a signal product intended for hedge funds engaging in hundreds of daily positions. A third product line is a platform onto which users can upload datasets, access it via an API and use EidoSearch’s tools to find predictive patterns.

Kedmey didn’t name specific customers in the interview, but said “many of the top 10 hedge funds, top 10 asset managers and mutual fund sponsors, and one of the largest futures-focused hedge funds” were all clients.

“We succeed if we help people find predictive patterns,” Kedmey said. “Our goal is not just to deliver a piece of text that’s new, but to show people how to use it, to assist them in using it and enhancing what they do today.”

Former Thomson Financial CEO Jeff Parker also serves as chairman of EidoSearch’s board.

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