com, :
"One way of viewing it is that markets may witness extended periods of
random fluctuation, interspersed with shorter periods of nonrandom
behavior. The goal of the chartist is to identify those periods (i.e.
major trends)."
Not so, retort the fundamentalists. The fair value of a security or a
market can be derived from available information using mathematical
models - but is rarely reflected in prices. This is the weak version of
the market efficiency hypothesis.
The mathematically convenient idealization of the efficient market,
though, has been debunked in numerous studies. These are efficiently
summarized in Craig McKinlay and Andrew Lo's tome "A Non-random Walk
Down Wall Street" published in 1999.
Not all markets are strongly efficient. Most of them sport weak or
"semi-strong" efficiency. In some markets, a filter model - one that
dictates the timing of sales and purchases - could prove useful. This
is especially true when the equilibrium price of a share - or of the
market as a whole - changes as a result of externalities.
Substantive news, change in management, an oil shock, a terrorist
attack, an accounting scandal, an FDA approval, a major contract, or a
natural, or man-made disaster - all cause share prices and market
indices to break the boundaries of the price band that they have
occupied.
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