Intraday Anomalies and Market Efficiency: A Trading Robot Analysis
AbstractOne of the leading criticisms of the Efficient Market Hypothesis (EMH) is the presence of so-called "anomalies", i.e. empirical evidence of abnormal behaviour of asset prices which is inconsistent with market efficiency. However, most studies do not take into account transaction costs. Their existence implies that in fact traders might not be able to make abnormal profits. This paper examines whether or not anomalies such as intraday or time of the day effects give rise to exploitable profit opportunities by replicating the actions of traders. Specifically, the analysis is based on a trading robot which simulates their behaviour, and incorporates variable transaction costs (spreads). The results suggest that trading strategies aimed at exploiting daily patterns do not generate extra profits. Further, there are no significant differences between sub-periods (2005-2006 - "normal" , 2007- 2009 - "crisis" , 2010-2011 - "post-crisis).
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1377.
Length: 20 p.
Date of creation: 2014
Date of revision:
Efficient Market Hypothesis; intraday patterns; time of the day anomaly; trading strategy;
Other versions of this item:
- Guglielmo Maria Caporale & Luis A. Gil-Alana & Alex Plastun & Inna Makarenko, 2014. "Intraday Anomalies and Market Efficiency: A Trading Robot Analysis," CESifo Working Paper Series 4752, CESifo Group Munich.
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-07-05 (All new papers)
- NEP-CMP-2014-07-05 (Computational Economics)
- NEP-MST-2014-07-05 (Market Microstructure)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Harris, Lawrence, 1986. "A transaction data study of weekly and intradaily patterns in stock returns," Journal of Financial Economics, Elsevier, Elsevier, vol. 16(1), pages 99-117, May.
- Anat R. Admati, Paul Pfleiderer, 1988. "A Theory of Intraday Patterns: Volume and Price Variability," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 1(1), pages 3-40.
- CORONEO, Laura & VEREDAS, David, 2006. "Intradaily seasonality of returns distribution. A quantile regression approach and intradaily VaR estimation," CORE Discussion Papers, UniversitÃ© catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2006077, UniversitÃ© catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- A Abhyankar & D Ghosh & E Levin & R J Limmack, 1995.
"Bid-Ask Spreads, Trading Volume and Volatility: Intraday Evidence from the London Stock Exchange,"
Working Papers Series, University of Stirling, Division of Economics
95/11, University of Stirling, Division of Economics.
- A. Abhyankar & D. Ghosh & E. Levin & R.J. Limmack, 1997. "Bid-ask Spreads, Trading Volume and Volatility: Intra-day Evidence from the London Stock Exchange," Journal of Business Finance & Accounting, Wiley Blackwell, Wiley Blackwell, vol. 24(3), pages 343-362.
- Jensen, Michael C., 1978. "Some anomalous evidence regarding market efficiency," Journal of Financial Economics, Elsevier, Elsevier, vol. 6(2-3), pages 95-101.
- Grossman, Sanford J & Stiglitz, Joseph E, 1980.
"On the Impossibility of Informationally Efficient Markets,"
American Economic Review, American Economic Association,
American Economic Association, vol. 70(3), pages 393-408, June.
- Sanford J Grossman & Joseph E Stiglitz, 1997. "On the Impossibility of Informationally Efficient Markets," Levine's Working Paper Archive 1908, David K. Levine.
- Pawel STRAWINSKI & Robert SLEPACZUK, 2008. "Analysis Of High Frequency Data On The Warsaw Stock Exchange In The Context Of Efficient Market Hypothesis," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(3(5)_Fall), pages 306-319.
- Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, American Finance Association, vol. 25(2), pages 383-417, May.
- Harris, Lawrence, 1989. "A Day-End Transaction Price Anomaly," Journal of Financial and Quantitative Analysis, Cambridge University Press, Cambridge University Press, vol. 24(01), pages 29-45, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bibliothek).
If references are entirely missing, you can add them using this form.