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Baumann, Michael Heinrich:
Beating the Market? : A Mathematical Puzzle to Market Efficiency.
2018
Veranstaltung: Forschungsseminar am Lehrstuhl für Finanzierung und Banken der Martin-Luther-Universität Halle-Wittenberg
, 6. November 2018
, Halle, Deutschland.
(Veranstaltungsbeitrag: Vortragsreihe
,
Vortrag
)
Abstract
The efficient market hypothesis is highly discussed - supported and criticized - in economic literature. In its strongest form, it states that there are no price trends. When weakening the non-trending assumption only a little to arbitrary short, small, and fully unknown trends, I mathematically prove, for a specific class of control-based trading strategies, positive expected gains. These strategies are model-free, i.e., a trader neither has to estimate market parameters as the trend's sign nor has to think about predictable patterns, etc. That means, since the trader does not have to know any trend, even trends too small to find them are enough to beat the market. Adjustments for risk and comparisons with buy-and-hold strategies do not satisfactorily solve the problem. In addition, in an exemplary backtesting study, when transaction costs and bid-ask-spreads are taken into account, I still observe, on average, positive gains. In this work, I bring together the economists' view on efficient markets and the engineers' view on feedback trading.