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62 Geo. Wash. L. Rev. 546 (1993-1994)
From Random Walks to Chaotic Crashes: The Linear Genealogy of the Efficient Capital Market Hypothesis

handle is hein.journals/gwlr62 and id is 562 raw text is: From Random Walks to Chaotic Crashes: The Linear Genealogy of the Efficient Capital Market Hypothesis Lawrence A. Cunningham* Introduction ................................................... 547 I. From Randomness to Efficiency ......................... 551 A. The History of the Random Walk Model ............. 551 1. Obscurity ......................................... 551 2. Linear Testing ................................... 553 a. Autocorrelation Tests ......................... 554 b. Run Analysis .................................. 555 c. Trading Rule Tests ............................ 556 B. Development of the ECMH .......................... 558 1. Three Forms of Efficiency ........................ 559 2. Noise Theory and Efficiency ...................... 563 C. Role of Asset Pricing Theory ......................... 566 1. Modem Portfolio Theory ......................... 567 2. The Capital Asset Pricing Model .................. 568 II. From Efficiency to Chaos ................................ 571 A. Nonlinear Dynamics ................................. 571 1. Linear and Nonlinear Distinguished .............. 571 * Assistant Professor of Law, Benjamin N. Cardozo School of Law, Yeshiva Univer- sity. Thanks to Ian Ayres, Bill Bratton, David Carlson, ArthurJacobson, Don Langevoort, John McGinnis, Larry Mitchell, Paul Shupack, Elliott Weiss, Chuck Yablon, and Fred Yen. Special thanks to Richard Olsen and Ed Peters, economists working with nonlinear dynam- ics and chaos theory in capital market trading, and to Alan Wolf, a physics professor, chaos theorist, and student at my Law School. For financial support, thanks to my Law School and University and to the Samuel and Ronnie Heyman Center on Corporate Governance. For excellent research assistance, thanks to Kim Abraham. April 1994 Vol. 62 No. 4 546