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Far From Random: Using Investor Behavior and Trend Analysis to Forecast Market Movement by Richard Lehman

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Chapter 9. A New Market Paradigm

Professor of Finance at the University of California, Irvine and author of The New Finance

We have now seen the results of many straightforward attempts to document the behavior of stock prices. The results do not conform to the predictions of the theories. They don't even come close. We have two choices. We can advance by developing radically new theories to help us understand what we now see in the data. Or we can go back, denying what is now readily apparent to most, bending the data through even more convoluted econometric processes, until it screams its compliance with our preconceptions.[69]

Robert A. Haugen

New economic and social paradigms can take years if not decades to fully materialize, even when their origins are associated with an eventful spark of extraordinary proportion—a war, a major discovery, an economic calamity. The unprecedented events of 2008–09 certainly qualify as the latter. Much of Wall Street, the main protagonist of the current paradigm, has imploded. Our homes, retirement plans, and other major assets have been crushed, as has our confidence in financial institutions, government, regulatory bodies, ratings agencies, and gurus who still cling to the principles that got us where we are today. We are primed for a generational change in thinking about how we view the stock market. This will coincide with another widely anticipated generational occurrence—the passing of an estimated $30 trillion to $40 trillion (or perhaps ...

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