This note comprises a negative resolution of the Efficient Market Hypothesis.
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48 results for “efficient market hypothesis”
Develops a new model for measuring extremal dependence in financial markets.
problem Lack of suitable models for studying extremal dependence in financial markets.
method Constructs regular variation models on and develops a bivariate measure for asymmetry in extremal dependence.
result Rejects the Efficient Tail Hypothesis for China's futures market and identifies profitable investment opportunities.
This study examines the adaptive market hypothesis (AMH) in Japanese stock markets (TOPIX and TSE2). In particular, we measure the degree of market efficiency by using a time-varying model approach. The empirical results show that (1) the degree of market efficiency changes over time in the two markets, (2) the level o…
We investigate whether fractal markets hypothesis and its focus on liquidity and invest- ment horizons give reasonable predictions about dynamics of the financial markets during the turbulences such as the Global Financial Crisis of late 2000s. Compared to the mainstream efficient markets hypothesis, fractal markets hy…
Statistical test rejects market efficiency using entropy from price returns.
problem Determining market efficiency using information theory.
method Symbolic representation of price returns, Shannon entropy, and statistical test.
result Rejects market efficiency hypothesis for various datasets.
New method selects optimal bandwidth for price return density estimation, impacting efficient market hypothesis evaluation.
problem Estimating the complexity of price return distributions using kernel density estimation.
method Proposes a new complexity measure to select optimal bandwidth, avoiding overfitting and underfitting.
result Optimal bandwidth selection leads to clearer evaluation of the efficient market hypothesis.
We pursue the quantum-mechanical challenge to the efficient market hypothesis for the stock market by employing the quantum Brownian motion model. We utilize the quantum Caldeira-Leggett master equation as a possible phenomenological model for the stock-market-prices fluctuations while introducing the external harmonic…
Study finds Bitcoin market efficient, no exploitable inefficiencies with neural networks.
problem Investigating market inefficiencies in Bitcoin using neural networks.
method Used a feedforward neural network with various asset-related input features.
result Adding more features does not improve prediction accuracy, and one feature set outperforms a buy-and-hold strategy.
The possibility that the collective dynamics of a set of stocks could lead to a specific basket violating the efficient market hypothesis is investigated. Precisely, we show that it is systematically possible to form a basket with a non-trivial autocorrelation structure when the examined time scales are at the order of…
In this article, the long-term behavior of the stock market index of the New York Stock Exchange is studied, for the period 1950 to 2013. Specifically, the CRSP Value-Weighted and CRSP Equal-Weighted index are analyzed in terms of market efficiency, using the standard ratio variance test, considering over 1600 one week…
Market efficiency at least requires the absence of weak arbitrage opportunities, but this is not sufficient to establish a situation where the market is sensitive, i.e., where it "fully reflects" or "rapidly adjusts to" some information flow including the evolution of asset prices. By contrast, No Weak Arbitrage togeth…
Study tests financial market efficiency using random number generator tests.
problem Check for informational efficiencies in financial markets.
method Analysed binary daily returns as random number generators, split analysis by annual and company levels, investigated longer-term efficiency over Nasdaq-listed companies.
result Information efficiency varies across years and reflects large-scale market impacts.
The efficient market hypothesis has far-reaching implications for financial trading and market stability. Whether or not cryptocurrencies are informationally efficient has therefore been the subject of intense recent investigation. Here, we use permutation entropy and statistical complexity over sliding time-windows of…
This study examines whether the efficiency of cryptocurrency markets (Bitcoin and Ethereum) evolve over time based on Lo's (2004) adaptive market hypothesis (AMH). In particular, we measure the degree of market efficiency using a generalized least squares-based time-varying model that does not depend on sample size, un…
Machine learning models show intermarket data can predict stock market performance better than expected.
problem Evaluating the semi-strong form of the Efficient Market Hypothesis.
method Used machine learning techniques on various intermarket data sets to predict stock market performance.
result Intermarket data significantly outperforms baselines in predicting stock market movement, contradicting the semi-strong EMH.
We derive formulas for the performance of capital assets in continuous time from an efficient market hypothesis, with no stochastic assumptions and no assumptions about the beliefs or preferences of investors. Our efficient market hypothesis says that a speculator with limited means cannot beat a particular index by a …
We discuss martingales, detrending data, and the efficient market hypothesis for stochastic processes x(t) with arbitrary diffusion coefficients D(x,t). Beginning with x-independent drift coefficients R(t) we show that Martingale stochastic processes generate uncorrelated, generally nonstationary increments. Generally,…
On Bitcoin Price Predictionq-fin.ST
This paper examines Bitcoin's price predictability, finding inefficiencies under certain conditions.
problem Predictability of Bitcoin's price movements.
method Theoretical reviews, empirical analyses, machine learning approaches, time series modeling.
result Bitcoin's market tends toward efficiency but shows exploitable inefficiencies under specific conditions.
Study shows how market efficiency changes during the pandemic.
problem Understanding market efficiency during the pandemic.
method Applied time-varying vector autoregression model.
result Market efficiency changes over time and can be improved by enhanced linkages.
Study finds mixed evidence of monthly stock market anomalies in Turkey and US.
problem Investigating whether stock markets exhibit abnormal returns monthly.
method Statistical summary analysis, decomposition technique, dummy variable estimation, binary logistic regression.
result Weak evidence against efficient market hypothesis on monthly returns, with notable May effect in Turkey.
"It Looks All the Same to Me": Cross-index Training for Long-term Financial Series Predictionq-fin.ST
Study examines cross-training neural networks for financial index prediction.
problem Predicting financial indexes from different markets using machine learning.
method Investigated various neural network architectures and trained them on one market index to predict another.
result Cross-training models on one market index improved prediction accuracy for another market index.
Paper proposes an EKF for estimating time-varying market efficiency.
problem Estimating time-varying market efficiency under nonlinear dynamics.
method Extended Kalman Filter (EKF) for time-varying autoregressive models.
result U.S. market generally remained weak-form efficient since mid-1946.
In this chapter we review some recent results on the dynamics of price formation in financial markets and its relations with the efficient market hypothesis. Specifically, we present the limit order book mechanism for markets and we introduce the concepts of market impact and order flow, presenting their recently disco…
In this work we use Recurrent Neural Networks and Multilayer Perceptrons to predict NYSE, NASDAQ and AMEX stock prices from historical data. We experiment with different architectures and compare data normalization techniques. Then, we leverage those findings to question the efficient-market hypothesis through a formal…
This study explores the time-varying structure of market efficiency in the prewar and wartime Japanese stock market using a new market capitalization-weighted stock price index, the equity performance index. We examine whether the adaptive market hypothesis (AMH) is supported in that era. First, we find that the degree…
It is believed by the majority today that the efficient market hypothesis is imperfect because of market irrationality. Using the physical concepts and mathematical structures of quantum mechanics, we construct an econophysics framework for the stock market, based on which we analogously map massive numbers of single s…
This paper uses spectrum analysis to understand price behavior in the Indian stock market.
problem Understanding price formation and discovery in the Indian stock market.
method Adapting mathematical physics theories and spectrum analysis to decompose price cycles.
result Decomposing price cycles helps in understanding the effect of information on price formation and discovery.
How to reconcile Market Efficiency and Technical Analysiscond-mat.stat-mech
Weak form of the Efficiency Market Hypothesis (EMH) excludes predictions of future market movements from historical data and makes the technical analysis (TA) out of law. However the technical analysis is widely used by traders and speculators who steadely refuse to consider the market as a "fair game" and survive with…
Leverage efficiencyq-fin.GN
Peters (2011a) defined an optimal leverage which maximizes the time-average growth rate of an investment held at constant leverage. It was hypothesized that this optimal leverage is attracted to 1, such that, e.g., leveraging an investment in the market portfolio cannot yield long-term outperformance. This places a str…
China's stock market is the largest emerging market all over the world. It is widely accepted that the Chinese stock market is far from efficiency and it possesses possible linear and nonlinear dependence. We study the predictability of returns in the Chinese stock market by employing the wild bootstrap automatic varia…
Collective dynamics of stock market efficiencyphysics.soc-ph
Study shows stock market efficiency varies over time and can be networked.
problem Understanding the dynamic and collective aspects of stock market efficiency.
method Defined and calculated time-varying efficiency using permutation entropy of log-returns.
result Major world stock markets can be hierarchically classified into groups with similar efficiency profiles, but these rankings are unstable.
This paper uses neural networks to predict stock prices more accurately.
problem Current stock analysis methods are inaccurate.
method Dynamic neural networks to identify stock price patterns.
result Neural networks outperform traditional stock analysis methods.
Hurst exponent and prediction based on weak-form efficient market hypothesis of stock marketsq-fin.ST
We empirically investigated the relationships between the degree of efficiency and the predictability in financial time-series data. The Hurst exponent was used as the measurement of the degree of efficiency, and the hit rate calculated from the nearest-neighbor prediction method was used for the prediction of the dire…
Study the link between entropy and market efficiency using fractal properties.
problem Determining market efficiency using entropy-based measures and fractal properties.
method Theoretical expression for market information using fractional Brownian motion and Lamperti transform. Multiscale method to interpret entropy and market information.
result A Hurst exponent close to 1/2 can lead to high informativeness of time series due to stationarity.
AI simplifies trading strategies, potentially making markets more efficient.
problem Efficient market hypothesis (EMH) relies on traders optimising trading strategies based on information.
method Generalised notion of market efficiency, distinguishing model complexity through investor beliefs and trading strategies.
result Increased availability of low-cost AI systems may push towards more advanced trading strategies, potentially harder for inefficient traders.
Artificial intelligence has impacted many aspects of human life. This paper studies the impact of artificial intelligence on economic theory. In particular we study the impact of artificial intelligence on the theory of bounded rationality, efficient market hypothesis and prospect theory.
Evaluating the Financial Market Function in Prewar Japan using a Time-Varying Parameter Modelq-fin.ST
This study evaluates prewar Japanese financial market efficiency using time-varying models.
problem Determining when prewar Japanese financial market lost its price formation function.
method Time-varying parameter model, generalized least squares-based time-varying vector autoregressive model.
result The prewar Japanese financial market lost its price formation function in 1932.
The Efficient Market Hypothesis has been a staple of economics research for decades. In particular, weak-form market efficiency -- the notion that past prices cannot predict future performance -- is strongly supported by econometric evidence. In contrast, machine learning algorithms implemented to predict stock price h…
ARCH and GARCH models assume either i.i.d. or (what economists lable as) white noise as is usual in regression analysis while assuming memory in a conditional mean square fluctuation with stationary increments. We will show that ARCH/GARCH is inconsistent with uncorrelated increments, violating the i.i.d. and white ass…
Algorithmic Complexity in Real Financial Marketscond-mat.stat-mech
A new approach to the understanding of complex behavior of financial markets index using tools from thermodynamics and statistical physics is developed. Physical complexity, a magnitude rooted in Kolmogorov-Chaitin theory is applied to binary sequences built up from real time series of financial markets indexes. The st…
Study proposes new methods to convert betting odds into accurate probabilities for sports forecasting.
problem Convert betting odds to accurate outcome probabilities for sports forecasting and market efficiency analysis.
method Proposes two methods: Odds-Only-Equal-Profitability-Confidence (OO-EPC) and Favourite-Longshot-Bias-Adjusted Generalised Linear Model (FL-GLM).
result Proposed methods outperform existing methods in empirical tests and real-world applications.
Algorithmic Complexity of Real Financial Marketscond-mat.stat-mech
A new approach to the understanding of the complex behavior of financial markets index using tools from thermodynamics and statistical physics is developed. Physical complexity, a magnitude rooted in the Kolmogorov-Chaitin theory is applied to binary sequences built up from real time series of financial markets indices…
Bitcoin option prices reflect both market maker supply and trader demand, especially from those with insider information.
problem Understanding how market prices of bitcoin options are influenced by both market makers and informed traders.
method Analysis of Deribit options tick-level data to identify supply and demand effects.
result At-the-money option prices are driven by volatility traders, while out-of-the-money options are influenced by both volatility traders and those with insider information.
Hypothesis of Market Efficiency is an important concept for the investors across the globe holding diversified portfolios. With the world economy getting more integrated day by day, more people are investing in global emerging markets. This means that it is pertinent to understand the efficiency of these markets. This …
We contrast Arbitrage Pricing Theory (APT), the theoretical basis for the development of financial instruments, with a dynamical picture of an interacting market, in a simple setting. The proliferation of financial instruments apparently provides more means for risk diversification, making the market more efficient and…
We perform detrending moving average analysis (DMA) and detrended fluctuation analysis (DFA) of the WTI crude oil futures prices (1983-2012) to investigate its efficiency. We further put forward a strict statistical test in the spirit of bootstrapping to verify the weak-form market efficiency hypothesis by employing th…
In finance, the weak form of the Efficient Market Hypothesis asserts that historic stock price and volume data cannot inform predictions of future prices. In this paper we show that, to the contrary, future intra-day stock prices could be predicted effectively until 2009. We demonstrate this using two different profita…
We analyze whether the prediction of the fractal markets hypothesis about a dominance of specific investment horizons during turbulent times holds. To do so, we utilize the continuous wavelet transform analysis and obtained wavelet power spectra which give the crucial information about the variance distribution across …