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Baroque Music and the Markets, by Victor Niederhoffer

The decline of some 8% in Japan from Friday, Jan. 13 to Wednesday, Jan. 18, followed by a 23-point decline in the S&P 500, its largest one-day fall in three years, seems too imitative and unique to be just chance variation. The cyclical nature of the decline might even be qualitatively related to the fall of Enron in 2001 on improper accounting, which led to the fall of R#fco in October 2005, which made the financial shenanigans of Livedoor in Japan seem that much more significant. To gain perspective on these nexus, I turn to Baroque music, which is more exact and quantitative and regular than Classical or Romantic, where each composer's work bears its own stamp and can be immediately differentiated.

The main principles of Baroque music that seem relevant are taken from Jeffrey Lependorf's Masterpieces of Western Music (a course I find totally uplifting and enjoyable in a deep sense, far above Robert Greenberg's Teaching Company course, which contains one socialist diatribe and biographical detail after another, rather than an appreciation of the music) augmented by the lecture notes of George Weston's Stylistic Awareness in Music of the Baroque.

Lependorf sees the main principles of Baroque music as Imitation, where one instrument imitates the melody of another; Sequencing, where one melody involving certain steps up and down on the scale is repeated in a lower or higher register by the same instrument; Terraced Dynamics, the sudden change from loud to soft or soft to loud; and Ritornello, the repetition of certain sections of music. I augment this with the rhythmic principle that downbeats are key and are always followed by strong beats. Weston summarizes these rules as follows:

Weak to Strong, Short to Long.
Repeated notes, Change of Song.

I am still in the construction-of-hypotheses stage: the asking of good questions. I hypothesize that big moves in Japan early in the week, not accompanied by corresponding US moves, will be followed by subsequent big moves in the same direction in the US. I hypothesize that the intervals of the moves in the early part of a day or week are repeated in the later parts of the day or week. I hypothesize that big down moves are followed by big up moves. I hypothesize that small changes in price during the day are followed by large changes. Finally, I hypothesize that when there is little or no change during a period, it tends to be followed by a change in direction from the preceding move.

All these and other ideas stemming from the beauty, poetry and regularity of Baroque music should be tested and augmented, and doubtless readers will have their own expansions and improvements to offer.

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