Contents 1. INTRODUCTION
Prediction in stock market has been a hot research topic for many years. Generally, there are three schools of thought in terms of the ability toprofit from the equity market. The first school believes that no investor can achieve above average trading advantages based on the historical and present information. The major theories include the Random Walk Hypothesis and the Efficient Market Hypothesis[21]. The Random Walk Hypothesis states that prices on the Stock market wander in a purely random and unpredictable way. Each price change occurs without any influence by past prices. The Efficient Market Hypothesis states that the markets fully and immediately once new information becomes available. If this is true then there should not be any benefit for prediction, because the market will react and compensate for any action made from this available information. In the actual market, some people do react to information immediately after they have received the information while other people wait for the confirmation of information. The waiting people do not react until a trend is clearly established. Because of the efficiency of the markets, returns follow a random walk. If these hypotheses come true, it will make all prediction methods worthless. Taylor [24] provides compelling evidence to reject the random walk hypothesis and thus offers encouragement for research into better market prediction.
