Aug

26

 When we draw a typical line chart we connect the lines. The stock may have traded at 7.00 and the next trade was 7.01. But nothing happened in between. There was no trade. Nevertheless the line drawn gives the illusion that the price action was continuous and there was a smooth transition from 7.00 to 7.01. A former collaborator of the Chair, the late M.F.M. Osborne used to argue that charts should be drawn as dots -one dot for each transaction marking its price on the vertical axis and time on the X axis. There should be nothing in between because nothing happened — just a dot cloud.

Osborne was also the first modern author to demonstrate the log Gaussian distribution as a good model for stock prices. Naturally because he was a physicist, another Professor of Finance usually gets the credit.


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