The Dow Theory: William Peter Hamilton's Track Record Re-Considered

45 Pages Posted: 7 Nov 2008  

Stephen J. Brown

New York University - Stern School of Business

William N. Goetzmann

Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)

Alok Kumar

Yale University

Multiple version iconThere are 2 versions of this paper

Date Written: February 1998

Abstract

Alfred Cowles' (1934) test of the Dow Theory apparently provided strong evidence against the ability of Wall Street's most famous chartist to forecast the stock market. In this paper we review Cowles' evidence and find that it supports the contrary conclusion - that the Dow Theory, as applied by its major practitioner, William Peter Hamilton over the period 1902 to 1929, yielded positive risk-adjusted returns. A re-analysis of the Hamilton editorials suggests that his timing strategies yield high Sharpe ratios and positive alphas. Neural net modeling to replicate Hamilton's market calls provides interesting insight into the nature and content of the Dow Theory. This allows us to examine the properties of the Dow Theory itself out-of-sample.

Suggested Citation

Brown, Stephen J. and Goetzmann, William N. and Kumar, Alok, The Dow Theory: William Peter Hamilton's Track Record Re-Considered (February 1998). NYU Working Paper No. FIN-98-013. Available at SSRN: https://ssrn.com/abstract=1296408

Stephen J. Brown

New York University - Stern School of Business ( email )

Stern School of Business
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New York, NY 10012-1126
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212-995-4233 (Fax)

William N. Goetzmann

Yale School of Management - International Center for Finance ( email )

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203-436-9252 (Fax)

HOME PAGE: http://viking.som.yale.edu

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

Alok Kumar

Yale University

New Haven, CT 06520
United States

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