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

46 Pages Posted: 11 Feb 1998

See all articles by Stephen J. Brown

Stephen J. Brown

New York University - Stern School of Business

Alok Kumar

University of Miami - Miami Herbert Business School

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
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Alok Kumar

University of Miami - Miami Herbert Business School ( email )

517B Jenkins Building
Department of Finance
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United States
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HOME PAGE: http://sites.google.com/view/alokmiami/home

William N. Goetzmann (Contact Author)

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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