The Random-Walk Theory: An Empirical Test

Predictive ability and profitability of simple technical trading rules: Recent evidence from Southeast Asian stock markets

“…2 In its weakest form, market efficiency implies that trading rules based on historical data should not be profitable. Early empirical studies have indeed shown that technical trading rules such as filter rules (Alexander, 1961(Alexander, , 1964Fama & Blume, 1966;Sweeney, 1988), relative strength rules (Brush & Boles, 1983;Jacobs & Levy, 1988;Jensen & Benington, 1970;Levy, 1967aLevy, , 1967b, and moving average trading rules (Dale & Workman, 1980;James, 1968;Van Horne & Parker, 1967) are unable to outperform a buy-and-hold strategy, and any predictable variation in equity returns is economically and statistically very small. 3 However, more recent studies have demonstrated that simple trading rules are useful for predicting determining the trading profit of the technical trading rule and continue to use unadjusted prices (instead of inflation adjusted returns, as in Ratner and Leal) as the basis for determining buy and sell signals from these rules.…”

Which heuristics can aid financial-decision-making?

“…The scepticism was reinforced in the early days of financial economics by negative empirical findings regarding the profitability of various technical rules in stock markets (Fama and Blume, 1966,van Horne and Parker, 1967, 1968, Jensen and Benington, 1970 The wide use of technical analysis both across all asset classes and over a long time also raises questions about how a practice that is so derided by standard Finance theory can be so persistent. In summary, the particular set of heuristics constituting the "adaptive toolbox" of technical traders…”

Moving Average Trading Rules for NASDAQ Composite Index

“…Early well-known empirical studies supported weak form market efficiency, implying that a trader cannot use past prices to forecast future prices. See for example Larson (1960), Cowles (1960), Granger and Morgenstern (1963), Mandelbrot (1963), Alexander (1964), Fama (1965), Fama and Blume (1966), Van Horn and Parker (1967), and Jensen and Benington (1970).…”