A Non-Random Walk Down Wall Street

Foroverhalfacentury,financialexpertshaveregardedthemovementsofmarketsasarandomwalk-unpredictablemeanderingsakintoadrunkard'sunsteadygait-andthishypothesishasbecomeacornerstoneofmodernfinancialeconomicsandmanyinvestmentstrategies.HereAndrewW.LoandA.CraigMacKinlayputtheRandomWalkHypothesistothetest.Inthisvolume,whichelegantlyintegratestheirmostimportantarticles,LoandMacKinlayfindthatmarketsarenotcompletelyrandomafterall,andthatpredictablecomponentsdoexistinrecentstockandbondreturns.Theirbookprovidesastate-of-the-artaccountofthetechniquesfordetectingpredictabilitiesandevaluatingtheirstatisticalandeconomicsignificance,andoffersatantalizingglimpseintothefinancialtechnologiesofthefuture.ThearticlestracktheexcitingcourseofLoandMacKinlay'sresearchonthepredictabilityofstockpricesfromtheirearlyworkonrejectingrandomwalksinshort-horizonreturnstotheiranalysisoflong-termmemoryinstockmarketprices.Aparticularhighlightistheirnow-famousinquiryintothepitfallsof"data-snoopingbiases"thathavearisenfromthewidespreaduseofthesamehistoricaldatabasesfordiscoveringanomaliesanddevelopingseeminglyprofitableinvestmentstrategies.ThisbookinvitesscholarstoreconsidertheRandomWalkHypothesis,and,bycarefullydocumentingthepresenceofpredictablecomponentsinthestockmarket,alsodirectsinvestmentprofessionalstowardsuperiorlong-terminvestmentreturnsthroughdisciplinedactiveinvestmentmanagement.