Mathematical Traders Fail Again
But in reality, events considered impossible in mathematical models occur quite frequently. Examples of this include the stock market crash of October 1987, the market movements that destroyed the Long Term Capital Management fund and the movements in August 2007. And while perhaps not considered impossible, we have also seen market movements that contradict what statistical patterns indicate. For example, normally September is the month of the year when the stock market is weakest while January is the month when it is strongest. But this September, stock prices rose sharply while they have fallen sharply this January.
Here is an interesting Bloomberg News article about how last year, the great losers were the "quants", i.e. the traders relying on mathematical models.
This again illustrates how human behavior cannot be captured in mathematical models. Instead, what matters is understanding of sound economic theory of how the economy and the markets function and the understaning of how to apply this to market movements.