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The Dow Theory: William Peter Hamilton's Track Record Reconsidered

  • Stephen J. Brown

    (New York University Stern School of Business,)

  • William N. Goetzmann

    (Yale School of Management)

  • Alok Kumar

    (Yale School of Management)

Alfred Cowles' test of the Dow Theory apparently provides strong evidence against the ability of Wall Street's most famous chartist to forecast the stock market. Cowles (1934) analyzes editorials published by the chief exponent of the Dow Theory, William Peter Hamilton. We review Cowles' evidence and find that it supports the contrary conclusion. Hamilton's timing strategies actually yield high Sharpe ratios and positive alphas for the period 1902 to 1929. Neural net modeling to replicate Hamilton's market calls provides interesting insight into the Dow Theory and allows us to examine the properties of the theory itself out of sample. Copyright The American Finance Association 1998.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 53 (1998)
Issue (Month): 4 (08)
Pages: 1311-1333

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Handle: RePEc:bla:jfinan:v:53:y:1998:i:4:p:1311-1333
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  1. Brock, W. & Lakonishok, J. & Lebaron, B., 1991. "Simple Technical Trading Rules And The Stochastic Properties Of Stock Returns," Working papers 90-22, Wisconsin Madison - Social Systems.
  2. Hsieh, David A, 1991. " Chaos and Nonlinear Dynamics: Application to Financial Markets," Journal of Finance, American Finance Association, vol. 46(5), pages 1839-77, December.
  3. repec:fth:pennfi:70 is not listed on IDEAS
  4. Neely, Christopher & Weller, Paul & Dittmar, Rob, 1997. "Is Technical Analysis in the Foreign Exchange Market Profitable? A Genetic Programming Approach," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(04), pages 405-426, December.
  5. Scheinkman, Jose A & LeBaron, Blake, 1989. "Nonlinear Dynamics and Stock Returns," The Journal of Business, University of Chicago Press, vol. 62(3), pages 311-37, July.
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