Seeking Alpha: Practical Application of Modern Portfolio Theory through Technical Analysis

In his influential book, A Random Walk Down Wall Street, Burton Malkiel makes his case for efficient market theory and passive investing all while excoriating technical analysis through straw man argument. About Beta he writes, “Beta really looks suspiciously like a tool of technical analysis in academic drag – a bastard cousin of the technician’s charts”. We believe beta looks like technical analysis because it is technical analysis as is, by extension, alpha. To whit, alpha and beta estimates can be derived solely from historical price action of securities and indices. Moreover, alpha and beta are indicators that can be effectively analyzed by charts. Most important, it is apparent to us that alpha in particular has useful predictive properties for securities selection and portfolio construction.

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