Chapter 4. The Technical Analysis Controversy

Chapter Objectives

After studying this chapter, you should have a good understanding of

• The basic principles of the Random Walk Hypothesis (RWH)

• The historical distribution of stock market returns

• The basic principles of the Efficient Markets Hypothesis (EMH)

• The pragmatic criticisms of technical analysis

• How technical analysts respond to critics

Though technical analysis is widely used by practitioners, its popularity is not mirrored in the academic community. The divergence in emphasis placed on technical analysis is highlighted by a study conducted by Flanegin and Rudd (2005) in which they surveyed both college professors and practitioners. The college professors were asked how much ...

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