The financial market is full of financial engineers and economists who use complex mathematical models to demystify future economic patterns in a given space. The former British Conservative Member of Parliament, Mr. Matthew Parris, argues that forecasting is an exercise in futility and only serve to increase noise trading. To what extent do you agree with Mr. Parris that forecasting is an exercise in futility? Does forecasting result in noise trading?
from a theoretical point of view, literature on market efficiency speaks to your question.
it may perhaps pertain to market participation density - more market participation may or may not increase market volatility
i would think that noise trading should be nothing else than an increase in market volatility. greater market participation (due to engineering etc) may or may not lead to more noise. this is something to empirically test
it also seems to be a question about the extent that single participants can shape markets
In many cases, what people call noise is unknown variables which do not fit into a particular "fundamental" explanation of stock market prices. To the extent that economic models are used in trading, they will effect the market price of a security. In a certain sense, all traders or investors use models. The model may be as simple as a Dow Dogs strategy or a set of complex algorithms.
Yes, it does but not totally. Every statistical set has a level of uncertainty (level of significance). However, tools like ARIMA can reduce this noise drastically since they are forecasting techniques.
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