Forum Archive Index - September 2003

[Stephen Judd <sljudd@paradise.net.nz>]

On Thu, 2003-09-18 at 17:31, david.gibson wrote:
> I have been thinking about the point you raised in you email:
>          Dow Jones stocks have huge capitalisation trading volumes. I
>         could be argued that small-mid cap stocks have different
>         characteristics to Dow Jones stocks. Any comments? 
>          
> The predominant acedemic view in the 80's and early 90's was that the
> stockmarket obeyed "the law of large numbers" and that stock time
> series were a "random walk" phenomenon based on the "efficient market"
> theories.
>  
> My personal view is that these assumptions are false.
>  
> Conventional models based on the assumption of zero autocorrelation of
> stock trajectories  are clearly false - yet this is the dominant view
> in the acedemic literature.

That's not an assumption. If you read Malkiel's "Random Walk Down Wall
St", you'll see that he and his students tested TA empirically - and
found that it performed no better than buy and hold, or after brokerage,
even worse. You can argue that their choice of signal might have been
wrong, or that the state of the art has improved since the 80s, but
their criticism was based in actual evidence, not just reasoning from
first principles.

Stephen


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