Behavioral Finance and Technical Analysis

Kosrow Dehnad ()
Additional contact information
Kosrow Dehnad: COLUMBIA UNIVERSITY/SAMBA FINANCIAL GROUP, Postal: Columbia University, Mudd Building , New York, NY 10025

Journal of Financial Transformation, 2011, vol. 32, 107-111

Abstract: Abstract Behavioural finance has challenged many claims of efficient market hypothesis (EMH). Unfortunately many of these challenges are in the form of anecdotal evidence and lack quantification. This article uses market data together with some simple statistics to show that in practice certain assertions of EMH and mathematical finance can be rejected with a high degree of confidence. The working of the FX market is used to demonstrate certain shortcomings of elegant results in mathematical finance that render them irrelevant in practice. An approach based on Markov chains is developed to model certain heuristic notions such as “fast market,” “support,” and “resistance,” that are widely used by “technical analysts” and practitioners. Using market observation, it is shown that this model better fits historical data than that implied by the assumption that daily returns are independent and normally distributed.

Keywords: Behavioral Finance; Technical Analysis; Volatility; Brownian Motion; Foreign Exchange; Efficient Market Hypothesis; Markov Chains; Mathematical Finance (search for similar items in EconPapers)
JEL-codes: C00 C18 C51 C52 C53 C54 C63 (search for similar items in EconPapers)
Date: 2011
References: Add references at CitEc
Citations: View citations in EconPapers (3)

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:jofitr:1464

Access Statistics for this article

Journal of Financial Transformation is currently edited by Prof. Shahin Shojai

More articles in Journal of Financial Transformation from Capco Institute 77 Water Street, 10th Floor, New York NY 10005.
Bibliographic data for series maintained by Prof. Shahin Shojai ( this e-mail address is bad, please contact ).