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Can Investors Benefit from Using Trading Rules Evolved by Genetic Programming? A Test of the Adaptive Efficiency of U.S. Stock Markets with Margin Trading Allowed

In: Computational Methods in Economic Dynamics

Author

Listed:
  • Stan Miles

    (Thompson Rivers University)

  • Barry Smith

    (York University)

Abstract

This paper employs genetic programming to develop trading rules, then uses these rules to test the efficient markets hypothesis. Unlike most similar research, the study both incorporates margin trading and returns trading rules that are more than simple buy-sell signals. Consistent with the standard portfolio model, a trading rule is defined here as the proportion of an investor’s total wealth that is held in the form of stocks; because margin trading is allowed, the proportion can be greater than 1. The results show that the 24 individual stock markets studied were adaptively efficient between 1985 and 2005.

Suggested Citation

  • Stan Miles & Barry Smith, 2011. "Can Investors Benefit from Using Trading Rules Evolved by Genetic Programming? A Test of the Adaptive Efficiency of U.S. Stock Markets with Margin Trading Allowed," Dynamic Modeling and Econometrics in Economics and Finance, in: Herbert Dawid & Willi Semmler (ed.), Computational Methods in Economic Dynamics, pages 77-108, Springer.
    • Handle: RePEc:spr:dymchp:978-3-642-16943-4_5
    DOI: 10.1007/978-3-642-16943-4_5
    as

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