A Non-Random Walk Down Wall Street

Princeton University Press
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For over half a century, financial experts have regarded the movements of markets as a random walk--unpredictable meanderings akin to a drunkard's unsteady gait--and this hypothesis has become a cornerstone of modern financial economics and many investment strategies. Here Andrew W. Lo and A. Craig MacKinlay put the Random Walk Hypothesis to the test. In this volume, which elegantly integrates their most important articles, Lo and MacKinlay find that markets are not completely random after all, and that predictable components do exist in recent stock and bond returns. Their book provides a state-of-the-art account of the techniques for detecting predictabilities and evaluating their statistical and economic significance, and offers a tantalizing glimpse into the financial technologies of the future.

The articles track the exciting course of Lo and MacKinlay's research on the predictability of stock prices from their early work on rejecting random walks in short-horizon returns to their analysis of long-term memory in stock market prices. A particular highlight is their now-famous inquiry into the pitfalls of "data-snooping biases" that have arisen from the widespread use of the same historical databases for discovering anomalies and developing seemingly profitable investment strategies. This book invites scholars to reconsider the Random Walk Hypothesis, and, by carefully documenting the presence of predictable components in the stock market, also directs investment professionals toward superior long-term investment returns through disciplined active investment management.

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About the author

Andrew W. Lo is the Harris & Harris Group Professor of Finance at the Sloan School of Management, Massachusetts Institute of Technology. A. Craig MacKinlay is Joseph P. Wargrove Professor of Finance at the Wharton School, University of Pennsylvania. With John Y. Campbell, they are the authors of The Econometrics of Financial Markets (Princeton), which received the Paul A. Samuelson Award in 1997.
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Additional Information

Princeton University Press
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Published on
Nov 14, 2011
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Business & Economics / Investments & Securities / General
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Content Protection
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Eligible for Family Library

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The Heretics of Finance provides extraordinaryinsight into both the art of technical analysis and the characterof the successful trader. Distinguished MIT professor Andrew W. Loand researcher Jasmina Hasahodzic interviewed thirteen highlysuccessful, award-winning market professionals who credit theirsubstantial achievements to technical analysis. The result isthe story of technical analysis in the words of the people who knowit best; the lively and candid interviews with these gurus oftechnical analysis.

The first half of the book focuses on the technicians' careers: How and why they learned technical analysisWhat market conditions increase their chances of makingmistakesWhat their average workday is likeTo what extent trading controls their livesWhether they work on their own or with a teamHow their style of technical analysis is unique 

The second half concentrates on technical analysis and addressesquestions such as these:

Did the lack of validation by academics ever cause you to doubttechnical analysis?Can technical analysis be applied to other disciplines?How do you prove the validity of the method?How has computer software influenced the craft?What is the role of luck in technical analysis?Are there laws that underlie market action?What traits characterize a highly successful trader?How do you test patterns before you start using them with realmoney?

Interviewees include:
Ralph J. Acampora, Laszlo Birinyi, Walter Deemer, Paul Desmond,Gail Dudack, Robert J. Farrell, Ian McAvity, John Murphy, RobertPrechter, Linda Raschke, Alan R. Shaw, Anthony Tabell, StanWeinstein.

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