potential theory

[cvh]

Hey guys, today I just heard an interesting topic.
It is the finding a model for assets in form of enery rules.
We suppose that an asset has potential energy and kinetic energy, and they follow rules similar to
the energy's one. That is generally, the asset moves round an expected return and when
its price is higher which equals to the higher potential energy the kinetic will decrease
(the increasing velocity downs ), then it passes balanced point and the kinetics starts rising and potentiality downs, repeatedly.
We expect to have a quadric relation as in the Newton's mechanic.
we've : mgh+ mv^2/2 = E. We'll try to determine the elements : m is likely to its volume
h: the height of price to the expected return; v: velocity of price (d/dt(St)); g is gravitational constant which is computed empirically.
This simple model reflexes only the shares traded in market not the firm's potential.
In addition, asset's energy is not constant because it continuously absorbs other energies.
I think that, It seems to be a wave equation. An asset is considered as a source of energy.
The waves impact on each other, and there are some shocks as "tsunamis"
Of course, the topic is more complex, but an interesting and hot debate.
Any ideas, trends, book...?

 

[euroazn]

This is _not_ how quant theories are born.
First of all, before we head any further, that's not really a potential energy formula. It just happens to be an approximation for gravitational potential energy at the surface of the earth - this begs the question, why arbitrarily pick that?

One of the big issues that I have with this theory is that in a normal gravitational scenario, the object is acted upon by a conservative force, namely that on any closed loop the net work done is zero. I argue that that is not the case with assets since volatility, for lack of a better word, matters.

The whole theory seems very arbitrary, much like the whole "Fibbonaci" charting system.