While it’s tempting to search for narrative insights that the market may have missed, chances are, whatever major drivers that can materially impact a publicly traded company’s valuation has probably already been priced in. As such, the more effective means of assessing the forward dynamics of a security may be to frame the market behaviors using the Markov property.
Under Markov, the future state of a system depends solely on the current state. Colloquially, this simply means that probabilities are influenced by context. For example, in professional football, a 20-yard field goal is practically considered a guaranteed three points. However, if you throw in the context of snow, crosswinds and playoff pressure, suddenly, the calculus changes quite dramatically.
