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Chaos on Wall Street
Cunningham, Ross
Cunningham, Ross
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2013
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2013-05-03
Abstract
This paper explores the efficient market hypothesis, a popular academic theory that explains movements in asset prices as a random walk. I provide empirical evidence as to why this theory fails to describe much of the behavior in financial markets, and introduce an opposing theory--chaos theory--to explain these fluctuations. I also provide systems for predicting and exploiting these market fluctuations to achieve a portfolio return that is greater than the broader stock market's return. Additionally, this paper analyzes bubbles and market crashes to show how they are inconsistent with the efficient market hypothesis, and proposes an "Accumulation-Distribution" model as a more accurate model for explaining market cycles.
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Economics