COOTNER THE RANDOM CHARACTER OF STOCK MARKET PRICES PDF

While professional practitioners displayed a strong and continuing interest in the stock market, it enjoyed relatively little academic attention until after the debacle of Aside from Working, the major name in this period is that of Alfred Cowles. The Cowles Commission now Foundation organized the first major collection of statistical data on the U. Even before that publication, however, Cowles has begun to analyze stock prices from the unique point of view that motivates this collection. It may be worthwhile to dwell on this distinction since it is sometimes a source of confusion among nonexperts. When statisticians hypothesize that the course of stock prices describes a random walk or Brownian motion, they do not imply that a skilled student of the subject cannot forecast price changes.

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While professional practitioners displayed a strong and continuing interest in the stock market, it enjoyed relatively little academic attention until after the debacle of Aside from Working, the major name in this period is that of Alfred Cowles. The Cowles Commission now Foundation organized the first major collection of statistical data on the U.

Even before that publication, however, Cowles has begun to analyze stock prices from the unique point of view that motivates this collection.

It may be worthwhile to dwell on this distinction since it is sometimes a source of confusion among nonexperts. When statisticians hypothesize that the course of stock prices describes a random walk or Brownian motion, they do not imply that a skilled student of the subject cannot forecast price changes. They merely imply that one cannot forecast the future based on past history alone.

As a result, in any study of runs, there is a greater tendency for positive changes to be followed by positive changes long up-runs and a smaller tendency for negative changes to be followed by negative changes shorter down-runs than would be found in a series with zero mean. The significant differences found by Cowles are indicative of this general uptrend rather than a serial dependence among price changes after correction for such trend. Although attention was an important factor in stimulating interest, the soil had been fertilized in an important way by the widening introduction of electronic computing machinery.

Autocorrelation coefficients are uniformly small and usually quite insignificant; runs tests support the independence hypothesis, and the distribution of price changes seemed at least approximately log-normal. The careful testing did, however, yield some mildly disturbing evidence which was to become more important in the research and theories of future students. For another, autocorrelations of successive one-week changes, while individually statistically insignificant, are predominantly negative to a degree which is statistically significant.

Granger and O. The spectrum of a time series is a representation through Fourier transforms of the autocorrelation function of that series. In that respect it is a close, if more sophisticated relative of the correlelogram. Within the limitations of available data, the spectrum gives a complete picture of autocorrelation in any stationary stochastic process with finite variance. It also determines the best linear predictor for such a time series. If, however, the series is not stationary, or if its variance does not exist Mandelbrot, , the results may be ambiguous or incorrect.

Also the failure to find any linear predictive relation does not rule out the possibility Alexander, that a nonlinear relation exists.

With these provisos in mind, however, the Granger-Morgenstern research lends strong support to the random walk thesis. Be respectful. Even negative opinions can be framed positively and diplomatically. Use standard writing style. Include punctuation and upper and lower cases. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended.

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