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

46 Pages Posted: 11 Feb 1998  

Stephen J. Brown

New York University - Stern School of Business

Alok Kumar

University of Miami - School of Business Administration

William N. Goetzmann

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

Multiple version iconThere are 2 versions of this paper

Date Written: January 23, 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.

JEL Classification: G14, C14, C22

Suggested Citation

Brown, Stephen J. and Kumar, Alok and Goetzmann, William N., The Dow Theory: William Peter Hamilton's Track Record Re-Considered (January 23, 1998). Available at SSRN: https://ssrn.com/abstract=58690 or http://dx.doi.org/10.2139/ssrn.58690

Stephen J. Brown

New York University - Stern School of Business ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0306 (Phone)
212-995-4233 (Fax)

Alok Kumar

University of Miami - School of Business Administration ( email )

514 Jenkins Building
Department of Finance
Coral Gables, FL 33124-6552
United States
305-284-1882 (Phone)

HOME PAGE: http://moya.bus.miami.edu/~akumar

William N. Goetzmann (Contact Author)

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

165 Whitney Ave.
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-5950 (Phone)
203-436-9252 (Fax)

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

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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