ARE STOCK PRICES PREDICTABLE? by

For some years now, the question of whether the history of a stock's price is relevant, useful or pro¯table in forecasting the future price of the stock has been a subject of controversy among academics and stock market professionals. On the one hand, there are those who believe that stock prices tend to follow certain patterns. These patterns may be simple or complex, easy or di±cult to identify, but are nonetheless predictable. Careful study of past prices, it is claimed, may reveal these patterns, which can then be used to forecast future prices, thereby providing pro¯ts for traders who buy or sell on the basis of the forecasts.1 On the other hand, there are some who argue that stock prices are no more predictable than the outcomes of a series of tosses of a coin, rolls of a die, or spins of a roulette wheel. In the stock market, proponents of this view say, the price of a stock is determined by its demand and supply. These are in°uenced by traders' expectations of the future earnings of the company. A change in the price of a stock will occur as a result of new information becoming available related to the future earnings of the company. Since this information is unlikely to have any connectio