The old financial orthodoxy was founded on two critical assumptions in Bachelier’s key model: Price changes are statistically independent, and they are normally distributed. The facts, as I vehemently argued in the 1960s and many economists now acknowledge, show otherwise. First, price changes are not independent of each other. Research over the past few decades, by me and then by others, shows that many financial price series have a “memory,” of sorts. Today does, in fact, influence tomorrow. If prices take a big leap up or down now, there is a measurably greater likelihood that they will
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