Technical analysis, the stochastic properties of security prices, and profits in trading.
Item
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Title
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Technical analysis, the stochastic properties of security prices, and profits in trading.
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Identifier
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AAI9207047
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identifier
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9207047
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Creator
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Baskin, Brenda Leigh.
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Contributor
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Adviser: Salih Neftci
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Date
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1991
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Language
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English
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Publisher
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City University of New York.
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Subject
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Economics, Finance
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Abstract
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Speculative traders in financial markets earn their living from trading profits that arise from correct forecasts of the direction and size of movements in security prices. A popular method among traders for such predictions is Technical Analysis, the study and investigation of movements in past security prices and market averages.;This paper reviews, formalizes, and tests methods of Technical Analysis. After an evaluation of the well-known practiced methods, we construct a mathematical framework for analyzing the stochastic properties and information structures in a long time series of security price data. Technical Analysis are said to be feasible only when they generate stopping rules.;Moving average methods, stochastic methods, ratio methods, divergence methods, and cycle methods are shown to be feasible Technical Analysis techniques in the sense that they are based on past information only, and not on the intuition or hunches of traders. Given the feasible methods, it is shown that these can have predictive value above the long autoregressive process prediction theory of Weiner-Kolmogorov only if the underlying security price is nonlinear.;Empirical tests are suggested to determine the significance of the feasible Technical Analysis methods, the linearity of various security price series, and ex post profits from trading rules from the set of feasible methods over varied time periods.;The paper provides a framework for evaluating all methods of Technical Analysis, an important criterion for the feasibility of trading rules, and strong support for the predictive value of the feasible trading rules explored. Important inferences are drawn about the plausibility of the efficient markets hypothesis for securities markets.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
