The Theory of Speculation (1900, translated)
from Annales scientifiques de l’Ecole Normale Suṕerieure (1900)
The influences which determine the movements of the Stock Exchange are innumerable. Events past, present or even anticipated, often showing no apparent connection with its fluctuations, yet have repercussions on its course. Beside fluctuations from, as it were, natural causes, artificial causes are also involved. The Stock Exchange acts upon itself and its current movement is a function not only of earlier fluctuations, but also of the present market position.The determination of these fluctuations is subject to an infinite number offactors: it is therefore impossible to expect a mathematically exact forecast.Contradictory opinions in regard to these fluctuations are so divided that at th esame instant buyers believe the market is rising and sellers that it is falling.Undoubtedly, the Theory of Probability will never be applicable to the movements of quoted prices and the dynamics of the Stock Exchange will never be an exact science. However, it is possible to study mathematically the static state of the marketat a given instant, that is to say, to establish the probability law for the price fluctuations that the market admits at this instant. Indeed, while the market does not foresee fluctuations, it considers which of them are more or less probable, and this probability can be evaluated mathematically. Up to the present day, no investigation into a formula for such an expression appears to have been published: that will be the object of this work. I have thought it necessary to recall initially some theoretical notions relating to Stock Exchange operations and to adjoin certain new insights indispensableto our subsequent investigations.
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