Premium
The Dow Theory: William Peter Hamilton's Track Record Reconsidered
Author(s) -
Brown Stephen J.,
Goetzmann William N.,
Kumar Alok
Publication year - 1998
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/0022-1082.00054
Subject(s) - economics , stock market , market timing , efficient market hypothesis , replicate , econometrics , financial economics , positive economics , neoclassical economics , mathematical economics , history , mathematics , statistics , portfolio , context (archaeology) , archaeology
Alfred Cowles' test of the Dow Theory apparently provides strong evidence against the ability of Wall Street's most famous chartist to forecast the stock market. Cowles (1934) analyzes editorials published by the chief exponent of the Dow Theory, William Peter Hamilton. We review Cowles' evidence and find that it supports the contrary conclusion. Hamilton's timing strategies actually yield high Sharpe ratios and positive alphas for the period 1902 to 1929. Neural net modeling to replicate Hamilton's market calls provides interesting insight into the Dow Theory and allows us to examine the properties of the theory itself out of sample.