Equalizer
Registered: Jan 2005
Posts: 1528 |
05-02-07 05:59 AM
Quote from eraci:
In chapter 1 which is freely available, Mark fisher claims that if market is following a random walk, then the morning 15 minutes has 1/26 likelihood to have seen the top (or bottom) of the day.
And then he went on to claim that it is actually much larger a proportion, thus the opening range is a much more important piece of the puzzle.
I can't help but laugh at this stupid claim. Only people who are poorly trained mathematically would believe this claim and take it at face value.
-eraci-
Ahem..., perhaps you'd like to cast your eyes over this then (see attachment) ...
Although MF's logic is flawed, the result is correct. This is known as the arcsine law and is as old as the woods. What the paper shows is that empirical evidence (at least at the LIFFE) suggest that there is an even higher probability of the H/L occurring at the beginning of the trading session than expected by the arcsine law on lognormally distributed intraday returns following a GBM (big assumptions). From theory and practice we infer a "U" shaped curve.
 hl.pdf
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