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Using a Differential Evolutionary Algorithm to Test the Efficient Market Hypothesis

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  • Phillip Simmons

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Abstract

The proposition that a relatively new technology such as a differential evolutionary algorithm (DEA) can violate the weak form of the efficient market hypothesis is tested using daily data from the Australian share market from 2000 until 2008. An option trading strategy based on forecasts from a DEA is shown to perform better than a buy and hold strategy over parts of the sample space and, on average, over all of it. Speculators may make supernormal profits using new methodologies however such profits are unlikely to be sustained. Copyright Springer Science+Business Media, LLC. 2012

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File URL: http://hdl.handle.net/10.1007/s10614-012-9314-2
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Bibliographic Info

Article provided by Society for Computational Economics in its journal Computational Economics.

Volume (Year): 40 (2012)
Issue (Month): 4 (December)
Pages: 377-385

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Handle: RePEc:kap:compec:v:40:y:2012:i:4:p:377-385

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Web page: http://www.springerlink.com/link.asp?id=100248
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Related research

Keywords: Differential evolutionary algorithm; Market efficiency; Speculation; Arbitrage; G14; G17;

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  1. Grossman, Sanford J & Stiglitz, Joseph E, 1980. "On the Impossibility of Informationally Efficient Markets," American Economic Review, American Economic Association, vol. 70(3), pages 393-408, June.
  2. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Working Papers 111, Princeton University, Department of Economics, Center for Economic Policy Studies..
  3. Burton G. Malkiel, 2003. "The Efficient Market Hypothesis and Its Critics," Journal of Economic Perspectives, American Economic Association, vol. 17(1), pages 59-82, Winter.
  4. De Bondt, Werner F M & Thaler, Richard, 1985. " Does the Stock Market Overreact?," Journal of Finance, American Finance Association, vol. 40(3), pages 793-805, July.
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