A Non-Random Walk Down Wall Street

A volume of collected works is almost always a bad sign for one’s research
trajectory, an indication of declining productivity as much as professional
recognition. We hope to be the exception that proves this rule because neither
of us is willing to concede that we have reached the apex of our careers .
However, we do think that the papers collected in this volume form a coherent
and exciting story, one that bears retelling now that we have the luxury
of seeing the forest for the trees . When we began our collaboration over
a decade ago, we certainly had no intention of embarking on as ambitious
a research agenda as this volume might imply. And although we are still
actively engaged in exploring these issues, when we were presented with the
opportunity to bring together a group of our papers, we simply could not
resist. Whether by design or by coincidence, here we are with eleven papers
and an introduction, the running total of our research on the Random Walk
Hypothesis and predictability in financial markets .
Although we were sorely tempted to revise our papers to incorporate
the benefits of hindsight, we have resisted that temptation so as to keep
our contributions in their proper context. However, we do provide general
introductions to each of the three parts that comprise this collection of
papers, which we hope will clarify and sharpen some of the issues that we
only touched upon when we were in the midst of the research . Also, we have
updated all our references, hence on occasion there may be a few temporal
inconsistencies, e.g., citations of papers published several years after ours .
We hope that this volume will add fuel to the fires of debate and controversy,
and expand the areńa to include a broader set of participants, particularly
those who may have more practical wisdom regarding the business
of predicting financial markets . Although Paul Samuelson once chided
economists for predicting “five out of the past three recessions”, our research
has given us a deeper appreciation for both the challenges and the
successes of quantitative investment management . As for whether or not
this little book contains the secrets to greater wealth, we are reminded of the streetwise aphorism that the first principle of making money is learning
how not to lose it . Indeed, although there are probably still only a few ways
to make money reliably, the growing complexity of financial markets has
created many more ways to lose it and lose it quickly. We have argued that
our research has not uncovered tremendous untapped profit opportunities,
but on the other hand, our research does provide some guidance on how
not to lose money. What more can one expect?

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