that a forecaster who presents a cheerful point of view thereby attracts more followers without whom he would probably be unable to remain long in the forecasting business.
Random walk hypothesis
While Cowles (1933, 1944) focused on testing analysts' advices, other academics focused on time series behavior. Working (1934), Kendall (1953) and Roberts (1959) found for series of speculative prices, such as American commodity prices of wheat and cotton, British indices of industrial share prices and the DJIA, that successive price changes are linearly independent, as measured by autocorrelation, and that these series may be well defined by random walks. According to the random walk hypothesis trends in prices are spurious and purely accidentally manifestations. Therefore, trading systems based on past information should not generate profits in excess of equilibrium expected profits or returns. It became commonly accepted that the study of past price trends and patterns is no more useful in predicting future price movements than throwing a dart at the list of stocks in a daily newspaper.However the dependence in price changes can be of such a complicated form that standard linear statistical tools, such as serial correlations, may provide misleading measures of the degree of dependence in the data. Therefore Alexander (1961) began defining filters to reveal possible trends in stock prices which may be masked by the jiggling of the market. A filter strategy buys when price increases by x percent from a recent low and sells when price declines by x percent from a recent high. Thus filters can be used to identify local peaks and troughs according to the filter size. He applies several filters to the DJIA in the period 1897-1929 and the S&P Industrials in the period 1929-1959. Alexander (1961) concludes that in speculative markets a price move, once initiated, tends to persist. Thus he concludes that the basic philosophy underlying technical analysis, that is prices move in trends, holds. However he notices that commissions could reduce the results found. Mandelbrot (1963, p.418) notes that there is a flaw in the computations of Alexander (1961), since he assumes that the trader can buy exactly at the low plus x percent and can sell exactly at the high minus x percent. However in real trading this will probably not be the case. Further it was argued that traders cannot buy the averages and that investors can change the price themselves if they try to invest according to the filters. In Alexander (1964) the computing mistake is corrected and allowance is made for transaction costs. The filter rules still show considerable excess profits over the buy-and-hold strategy, but transaction costs wipe out all the profits. It is concluded that an investor who is not a floor trader and must pay commissions should turn to other