For over half a century, financial experts have regarded the movements of markets as a random walk--unpredictable meanderings akin to a drunkard's unsteady gait--and this hypothesis has become a cornerstone of modern financial economics and many investment strategies. Here Andrew W. Lo and A....

In recent years, the number of downgrades in corporate bond ratings has exceeded the number of upgrades. This fact has led some to conclude that the credit quality of U.S. corporate debt has declined. However, declining credit quality is not the only possible explanation. An alternative...