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Capital Flows Profile picture
@Globalflows
Feb 5 • 3 tweets • 4 min read • Read on X
What is a Markov Model?

Here is a technical definition:

A Markov Model is a statistical model used to represent systems that transition from one state to another according to certain probabilistic rules. The defining characteristic of a Markov Model is the Markov property, which states that the probability of transitioning to any particular state depends solely on the current state and time elapsed, and not on the sequence of states that preceded it.

Markov Models are widely used in various fields such as physics, chemistry, economics, and particularly in computer science for algorithms in machine learning, natural language processing, and data compression, among others. The model can be represented as a set of states, transitions between these states, and the probabilities associated with these transitions.
There are several types of Markov Models, including:

Discrete-time Markov Chains: The state transitions occur at discrete time steps.

Continuous-time Markov Chains: The state transitions occur continuously over time.

Hidden Markov Models: The state is not directly visible, but the output, dependent on the state, is visible.

Markov Decision Processes: An extension of Markov Chains that include decisions, rewards, and objectives.

Each type has its own specific use-cases and methods for analysis and prediction.
Here are some papers to start with:

















(this is a good one)





twosigma.com/wp-content/upl…
papers.ssrn.com/sol3/papers.cf…
papers.ssrn.com/sol3/papers.cf…
papers.ssrn.com/sol3/papers.cf…
papers.ssrn.com/sol3/papers.cf…
papers.ssrn.com/sol3/papers.cf…
papers.ssrn.com/sol3/papers.cf…
papers.ssrn.com/sol3/papers.cf…
papers.ssrn.com/sol3/papers.cf…
papers.ssrn.com/sol3/papers.cf…
papers.ssrn.com/sol3/papers.cf…
papers.ssrn.com/sol3/papers.cf…

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More from @Globalflows

Capital Flows Profile picture
Jan 29
First, they fear mongered about the economy, then market breadth, and now it's the vol complex.

We all know there is structural fragility. We all know people buy based on things other than fundamentals. We all know there is a lot of debt outstanding.
We all know passive flows are a big deal and there are a lot of zombie companies out there.

We all know Mag 7 trades at a premium.

We all know about gamma and market makers.
The market isn't meant to tell you something is right or wrong. It is meant to facilitate transactions. Trading is about capital flows!

You are always trading the flows of capital, not whether the HR department at a company has a new diversity training.
Read 8 tweets
Capital Flows Profile picture
Jan 29
Inflation and Interest Rates Breakdown: 👇

Main Idea: We are in a period of time when inflation is decelerating and approaching the Fed’s 2% inflation target. However, there are key tensions to monitor with HOW inflation and growth are impacting each other.
Additionally, the Fed's stance introduces a marginal degree of uncertainty because inflation is partially dependent on the degree of the Fed’s actions.
Fundamentally, we are at the beginning of a cutting cycle where inflation is skewed to the downside and the primary uncertainty is around HOW MANY rate cuts will take place.
Read 25 tweets
Capital Flows Profile picture
Nov 19, 2023
Bubbles in financial markets: Research Drop👇

There continues to be this idea that when there is a "bubble" you should remain as far away as possible from it because "inevitably" (whatever that means) it will fall.
First, there is no agreed-upon view of "a bubble" just like there is no agreed-upon view of what a trend is. You can say parabolic price action or high valuations but disconfirming evidence can be provided for such a concrete definition.
Like most things in life, there are no rules.
Read 13 tweets
Capital Flows Profile picture
Oct 11, 2023
The move in equities has been directly connected to the bear steepener. >

Bear Steepener has been directly connected to duration issuance > Image
The following dates are the government auctions for duration into the end of the year:

10/11 with 10-year note issuance.

10/12 with 30-year bond issuance.

10/18 with 20-year bond issuance (although less significant than 10y and 30y).

11/08 with 10-year note issuance.
11/09 with 30-year bond issuance.

11/20 with 20-year bond issuance (although less significant than 10y and 30y).

12/11 with 10-year note issuance.

12/12 with 30-year bond issuance.

12/20 with 20-year bond issuance (although less significant than 10y and 30y).
Read 5 tweets
Capital Flows Profile picture
Oct 7, 2023
Macro Thread:
We continue to be in a regime where inflation is the dominant impulse but this impulse continues to decrease in its causal force across assets.
There is a key tension taking place that is being ignored.
Interest rate hikes caused the investment and cyclical sectors of the economy to decelerate in 2022: Image
However, these cyclical sectors have reaccelerated in 2023 which poses a question: Are the interest rate hikes enough?
Read 21 tweets
Capital Flows Profile picture
Sep 16, 2023
Economic Data Modeling in Chat GPT:

There are some very simple things you can do with economic data in ChatGPT.

Let's use CPI as an example 👇
We can go to the FRED database and pull YoY core CPI data:
fred.stlouisfed.org/series/CPILFESL
Have ChatGPT map it on to a table: Image
Read 9 tweets

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