Contents for Lo & MacKinlay: A Non-Random Walk Down Wall Street SEARCH: Search Hints NEW BOOK E-MAILS NEW IN PRINT E-BOOKS SUBJECTS SERIES CATALOGS SAMPLE CHAPTERS ONLINE BOOKS CLASS USE PERMISSIONS RECENT PRIZES FOR REVIEWERS ABOUT US EUROPEAN OFFICE TO CONTACT US F.A.Q. ONLINE ORDERING USEFUL LINKS HOME PAGE A Non-Random Walk Down Wall Street Andrew W. Lo and A. Craig MacKinlay Book Description | Reviews | Table of Contents | To Order COPYRIGHT NOTICE: Published by Princeton University Press and copyrighted, © 1999, by Princeton University Press. All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from the publisher, except for reading and browsing via the World Wide Web. Users are not permitted to mount this file on any network servers. Follow links for Class Use and other Permissions. For more information, send e-mail to permissions@pupress.princeton.edu Full text online (PDF format): Frontmatter Contents List of Figures List of Tables Preface 1. Introduction Part I 2. Stock Market Prices Do Not Follow Random Walks: Evidence from a Simple Specification Test 3. The Size and Power of the Variance Ratio Test in Finite Samples: A Monte Carlo Investigation 4. An Econometric Analysis of Nonsynchronous Trading 5. When Are Contrarian Profits Due to Stock Market Overreaction? 6. Long-Term Memory in Stock Market Prices Part II 7. Multifactor Models Do Not Explain Deviations from the CAPM 8. Data-Snooping Biases in Tests of Financial Asset Pricing Models 9. Maximizing Predictability in the Stock and Bond Markets Part III 10. An Ordered Probit Analysis of Transaction Stock Prices 11. Index-Futures Arbitrage and the Behavior of Stock Index Futures Prices 12. Order Imbalances and Stock Price Movements on October 19 and 20, 1987 References Index Return to Book Description File created: 07/24/03 Questions and comments to: webmaster@pupress.princeton.edu Princeton University Press http://www.pupress.princeton.edu/books/lo/8/20/2006 3:11:29 PM Keywords ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~ ~~~~ ~ ~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~ ~~~~ ~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~ ~ ~~~~~~~~~~~~~~~~~ ~ ~ ~~~~ ~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~ 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~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~ ~ ~~~ ~~ ~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ ~ ~~~ [...]... estimated more accurately than means when data is sampled at finer intervals, we proposed a test of the random walk based on a comparison of variances at different sampling intervals And 13 14 Part l by casting the comparison as a Hausman (1978) specification test, we were able to obtain an asymptotic sampling theory for the variance ratio statistic almost immediately, which we later generalized and extended... anticipated, i e , if they fully incorporate the expectations and information of all market participants Fama (1970) encapsulated this idea in his pithy dictum that "prices fully reflect all available information " Unlike the many applications of the Random Walk Hypothesis in the natural and physical sciences in which randomness is assumed almost by default, because of the absence of any natural alternatives,... What more can one expect? During the course of our research we have accumulated a number of intellectual debts-fortunately, they bear no interest otherwise we would have become insolvent years ago First and foremost, we thank our advisorsAndy Abel and Jerry Hausman (AWL) , and Gene Fama and Arnold Zellner (ACM)-who gave us the training and guidance that launched our careers and continue to sustain... application of the Random Walk Hypothesis to financial markets can be traced back to Paul Samuelson (1965), whose contribution is neatly summarized by the title of his article : "Proof that Properly Anticipated Prices Fluctuate Randomly." In an informationally efficient market-not to be confused with an allocationally or Pareto-efficient market-price changes must be unforecastable if they are properly anticipated,... exploits the fact that the variance of the increments of a random walk is linear in the sampling interval If stock prices are generated by a random walk (possibly with drift) , then, for example, the variance of monthly sampled log-price relatives must be 4 times as large as the variance of a weekly sample Comparing the (per unit time) variance estimates obtained from weekly and monthly prices may... that value-added comes from creating investments with more attractive risk-sharing characteristics suggested by psychological models Though the difference may seem academic, it has far-reaching consequences for the long-run performance of such strategies : taking advantage of individual irrationality cannot be a recipe for long-term success, but providing a better set of opportunities that more closely... instantaneously, which it must in an idealized world of "frictionless" markets and costless trading, then prices must always fully reflect all available information and no profits can be gars Parts of this introduction are adapted from Lo (199 7a, b) and Lo and MacKinlay (1998) 2 See, for example, Hald (1990, Chapter 4) 3 4 1 Introduction nered from information-based trading (because such profits have... clientele biases, tax opportunities, information lags, can add value • Many studies have demonstrated the enormous impact that transactions costs can have on long-term investment performance More sophisticated methods for measuring and controlling transactions costsmethods which employ high-frequency data, economic models of price impact, and advanced optimization techniques-can add value Also, the... and now called "statistical arbitrage," these strategies have fared reasonably well until recently, and are now regarded as a very competitive and thin-margin business because of the proliferation of hedge funds engaged in these activities This provides a plausible explanation for the trend towards randomness in the recent data, one that harkens back to Samuelson's "Proof that Properly Anticipated Prices... frequency 0 (with a Bartlett window) as the appropriate asymptotic variance of the variance ratio But Priestley's result requires (among other things) that q -1 oa, T ~ eo, and q T ~ 0 In this chapter we develop the formal sampling theory of the variance-ratio statistics for the more general case Our variance ratio may, however, be related to the spectral-density estimates in the following way Letting . Contents for Lo & MacKinlay: A Non-Random Walk Down Wall Street SEARCH: Search Hints NEW BOOK E-MAILS NEW IN PRINT E-BOOKS SUBJECTS SERIES CATALOGS SAMPLE CHAPTERS ONLINE BOOKS CLASS USE PERMISSIONS RECENT. REVIEWERS ABOUT US EUROPEAN OFFICE TO CONTACT US F .A. Q. ONLINE ORDERING USEFUL LINKS HOME PAGE A Non-Random Walk Down Wall Street Andrew W. Lo and A. Craig MacKinlay Book Description | Reviews | Table. Finite Samples: A Monte Carlo Investigation 4. An Econometric Analysis of Nonsynchronous Trading 5. When Are Contrarian Profits Due to Stock Market Overreaction? 6. Long-Term Memory in Stock Market