The Friendly Trend – Technical vs. Fundamental Analysis

| Total Words: 1552

The authors of a paper published by NBER on March 2000 and titled “The Foundations of Technical Analysis” – Andrew Lo, Harry Mamaysky, and Jiang Wang – claim that:

“Technical analysis, also known as ‘charting’, has been part of financial practice for many decades, but this discipline has not received the same level of academic scrutiny and acceptance as more traditional approaches such as fundamental analysis.

One of the main obstacles is the highly subjective nature of technical analysis – the presence of geometric shapes in historical price charts is often in the eyes of the beholder. In this paper we offer a systematic and automatic approach to technical pattern recognition … and apply the method to a large number of US stocks from 1962 to 1996…”

And the conclusion:

” … Over the 31-year sample period, several technical indicators do provide incremental information and may have some practical value.”

These hopeful inferences are supported by the work of other scholars, such as Paul Weller of the Finance Department of the university of Iowa. While he admits...

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