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At 10:12 PM -0500 2/21/99, john anderson wrote:
>Perhaps the standard of proof required on all sides should be raised so
>that at last we can actually get somewhere with providing EVIDENCE and
>have them reported to a standard that anyone would expect before investing
>money in anything. If practitioners would improve their game at reporting
>evidence, perhaps the divide between academics and practitioners could be
>bridged - even if just for a little while.
This topic is addressed in a recent book, "The Econometrics of
Financial Markets", 1997, by three authors who most would agree have
impressive credentials:
John Campbell,
Otto Eckstein Professor of Applied Economics at Harvard Un.,
Andrew Lo,
Harris & Harris Group Professor at the Sloan School of
Management at MIT, and
Craig MacKinlay, Professor of Finance at the Wharton School,
Un. of Pennsylvania.
Chapter 2 spends over 50 pages summarizing dozens of technical papers
published in prestigious economic journals that addressed predictability of
the markets and tests of the Efficient Market Hypothesis. In the conclusion
of the chapter, Section 2.9, they state:
"Recent econometric advances and empirical evidence seem to
suggest that financial asset returns are predictable to some
degree. Thirty years ago this would have been tantamount to
an outright rejection of market efficiency. However, modern
financial economics teaches us that other, perfectly rational
factors may account for such predictability. The fine
structure of securities markets and frictions in the trading
process can generate predictability. Time-varying expected
returns due to changing business conditions can generate
predictability. A certain degree of predictability may be
necessary to reward investors for bearing certain dynamic
risks. Motivated by these considerations, we shall develop
many models and techniques to address these and other related
issues in the coming chapters."
It would seem that even the academics are beginning to understand that
technical analysis can work.
The "Efficient Market Hypothesis" was based upon the assumptions that all
information was equally available to all participants so no one could have
an advantage. Well, it is available if you want to pay a lot of money for
it. Not everyone wants to do so, so they are at a disadvantage.
And there is now so much information available that you need a way to
filter out the really useful information from all the mostly noise that
bombard us every day. Not everyone has the skill to do that so they are at
a disadvantage.
But I tend to agree that almost all the people who want to sell me some
technique that will make me rich are con artists. If they really had such a
secret, they would not sell it at any price...
Bob Fulks
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