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Beating the Market? : A Mathematical Puzzle to Market Efficiency

Title data

Baumann, Michael Heinrich:
Beating the Market? : A Mathematical Puzzle to Market Efficiency.
2018
Event: Forschungsseminar am Lehrstuhl für Finanzierung und Banken der Martin-Luther-Universität Halle-Wittenberg , 6. November 2018 , Halle, Deutschland.
(Conference item: Lecture series , Speech )

Abstract in another language

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.

Further data

Item Type: Conference item (Speech)
Refereed: No
Keywords: Technical Analysis; Efficient Market Hypothesis; Robust Positive Expectation Property; Simultaneously Long Short Trading; Control-based Trading Strategies
Subject classification: JEL codes C02, G11, G14
Institutions of the University: Faculties > Faculty of Mathematics, Physics und Computer Science > Department of Mathematics
Faculties > Faculty of Mathematics, Physics und Computer Science > Department of Mathematics > Chair Mathematics V (Applied Mathematics)
Faculties > Faculty of Law, Business and Economics > Department of Economics
Profile Fields > Advanced Fields
Profile Fields > Advanced Fields > Nonlinear Dynamics
Research Institutions > Research Centres > Forschungszentrum für Modellbildung und Simulation (MODUS)
Result of work at the UBT: Yes
DDC Subjects: 300 Social sciences > 330 Economics
500 Science > 510 Mathematics
Date Deposited: 14 Jan 2019 15:30
Last Modified: 14 Jan 2019 15:30
URI: https://eref.uni-bayreuth.de/id/eprint/46916