Wall Street in New York is the home of the New York Stock Exchange. An army of mathematicians are employed there to analyze and predict the stock price variations. Their employers can potentially earn millions of dollars based on their predictions about which way the prices will jump.
Mathematicians however say that stock markets follow a random walk. This means that unless some spectacular event occurs, the prices have the same chances of decreasing and increasing at the end of any day. If patterns do exist, they will be elusive and difficult to find, which is why financial mathematicians are paid huge sums.
Some of the intricate mathematics used for stock market analyses can be traced back to Einstein. He developed the fluctuation-dissipation theorem to explain the random movement of particles found in liquids or gases.
This movement called ‘Brownian motion’ was first observed by the Scottish biologist Robert Brown. Brownian motion is highly similar to the price fluctuations seen in stock markets. The similarity was observed in 1970 and since then it has been used on Wall Street. Einstein’s paper on Brownian motion is still used as the basis for certain stock market predictions.
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