There is, however, at least one important technique of technical analysis which has not been extensively tested-correction for the âco-movementâ of stock prices. Benjamin F. King, Jr., in his unpublished Ph.D. dissertation, concluded that a large part of the movement of the price of a stock can be viewed as co-movement, not independent of what happens to the prices of other stocks.2 Kingâs conclusion was supported in a statement by John M. Birmingham, Jr. One . . . analysis, as yet only privately circulated, does indicate that the portfolio planning students are on the right track when they talk about intercorrelation of stock prices. It strongly suggests that the majority of individual stock price changes are controlled by more dominant âgeneral marketâ and industry tendencies. In other words, successive changes in GM may be independent of previous changes for GM stock, but they are not independent of simultaneous changes in all other stocks or, in particular, other auto stocks? The intercorrelation or co-movement of stock prices could conceal existing dependencies in successive price changes. Perhaps an overly-simplified example will illustrate this phenomenon more clearly. The following table sets forth the prices of Stocks A and B at the
The Journal of Finance – Wiley
Published: Dec 1, 1967
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