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The adaptive markets hypothesis: evidence from the foreign exchange market

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  • Christopher J. Neely
  • Paul A. Weller
  • Joshua M. Ulrich

Abstract

We analyze the intertemporal stability of excess returns to technical trading rules in the foreign exchange market by conducting true, out-of-sample tests on previously studied rules. The excess returns of the 1970s and 1980s were genuine and not just the result of data mining. But these profit opportunities had disappeared by the early 1990s for filter and moving average rules. Returns to less-studied rules also have declined but have probably not completely disappeared. High volatility prevents precise estimation of mean returns. These regularities are consistent with the Adaptive Markets Hypothesis (Lo, 2004), but not with the Efficient Markets Hypothesis.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2006-046.

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Date of creation: 2007
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Handle: RePEc:fip:fedlwp:2006-046

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Keywords: Foreign exchange market ; Foreign exchange;

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Adaptive Market Hypothesis: Yes Virginia, there is alpha in the market
    by Alan J in castrader blog on 2006-10-10 20:27:41
  2. Can technical analysis beat the market? Part I, Survey of academic studies
    by Alan J in castrader blog on 2006-10-10 00:49:53
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