Making $$$ using random walk

Discussion in 'Trading' started by Thumama, Aug 4, 2008.

  1. Thumama

    Thumama

    Hi..

    Assume that the market is efficient and that prices move randomly.

    1. For any stock, test the randomness of its price moves. There are many tests for randomness: for example, use the variance ratio test.

    2. If the value of the variance ratio test indicates a nonrandom behavior of the time series, extend the time series by adding values ( future prices) that will force the variance ratio test to indicate a random walk. (revert to its expected value)

    3. Try this for different timeframes and on average you get some abnormal returns.

    I am just thinking..
    Any thought?


    Thumama..