Control theorist Barmish challenges need to model financial markets

In applying control theory to financial markets, B. Ross Barmish advocates reacting to market performance, "rather than trying to have a crystal ball." Photo: iStock B. Ross Barmish hopes his research will build a bridge between control theorists and financial scholars. Barmish, a professor of electrical and computer engineering at UW-Madison, posits that not only are predictive models of financial markets unreliable, but also that stock traders can do without predictive models, simply by applying control theory to the markets. Control theory is a field of applied mathematics that has addressed the control and stability of systems ranging from physical machinery to economics. Barmish's theory involves reactions to markets rather than predictions. "When I do my analysis, I say the model doesn't matter," Barmish says. The reactive, algorithmic approach he's building could work just fine for someone who knows absolutely nothing about pricing patterns, who's never analyzed statistics of stocks' past behavior.