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Abstract:
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The three plots presented are: (A) Daily closing change in the Dow: 1st Quarter, 2014; (B ) Daily closing change in the Dow when simulated daily closings are independent normal random variables with mean=16000, standard deviation=90; (C) Same as B, but add a gain of 10 points daily to each normal (this represents an overall expected gain of approximately 600 points for the quarter.) All three plots are lacking any pattern, i.e., random, and all three look the same! Still not convinced: a handout will be provided that tested the randomness quarterly over a 12 year period. The runs test for randomness was rejected at the 5% level in only three of the 48 cases.
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