Abstract
Market efficiency is generally accepted in the academic community even though it cannot fully describe reality. Primarily due to noise, prices merely reflect beliefs about a firm’s unknown true intrinsic value which makes behavioral finance important. Technical analysis attempts to measure changes in these beliefs to predict stock prices and should have value given the evidence in behavioral finance, the use in practice and the conditional predictability of human behavior. Moreover, the lack of academic evidence in technical studies probably results from the violation of two foundational principles in the discipline.
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