Measuring the Efficiency of the Intraday Forex Market with a Universal Data Compression Algorithm

Universal compression algorithms can detect recurring patterns in any type of temporal data—including financial data—for the purpose of compression. The universal algorithms actually find a model of the data that can be used for either compression or prediction. We present a universal Variable Order...

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Vydáno v:	Computational economics Ročník 33; číslo 2; s. 131 - 154
Hlavní autoři:	Shmilovici, Armin, Kahiri, Yoav, Ben-Gal, Irad, Hauser, Shmuel
Médium:	Journal Article
Jazyk:	angličtina
Vydáno:	Boston Springer US 01.03.2009 Society for Computational Economics Springer Nature B.V
Edice:	Computational Economics
Témata:	62M20 62P05 91B84 Algorithms Behavioral/Experimental Economics C22 C49 C53 C63 Capital market theory Compression Computer Appl. in Social and Behavioral Sciences Data Data compression Economic models Economic statistics Economic theory Economic Theory/Quantitative Economics/Mathematical Methods Economics Economics and Finance Efficient Market Hypothesis Efficient markets Exchange market Forecasting Forecasting techniques Foreign exchange Foreign exchange rates Forex Intra-day trading G14 Hypotheses Market efficiency Markets Markov analysis Math Applications in Computer Science Measurement Online securities trading Operations Research/Decision Theory Process controls Studies Universal prediction Variable Order Markov C53 C63 Variable Order Markov C22 Universal prediction Forex Intra-day trading C49 62P05 G14 Efficient Market Hypothesis 91B84 62M20
ISSN:	0927-7099, 1572-9974
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Popis
Shrnutí:	Universal compression algorithms can detect recurring patterns in any type of temporal data—including financial data—for the purpose of compression. The universal algorithms actually find a model of the data that can be used for either compression or prediction. We present a universal Variable Order Markov (VOM) model and use it to test the weak form of the Efficient Market Hypothesis (EMH). The EMH is tested for 12 pairs of international intra-day currency exchange rates for one year series of 1, 5, 10, 15, 20, 25 and 30 min. Statistically significant compression is detected in all the time-series and the high frequency series are also predictable above random. However, the predictability of the model is not sufficient to generate a profitable trading strategy, thus, Forex market turns out to be efficient, at least most of the time.
Bibliografie:	SourceType-Scholarly Journals-1 ObjectType-Feature-1 content type line 14 ObjectType-Article-2 content type line 23
ISSN:	0927-7099 1572-9974
DOI:	10.1007/s10614-008-9153-3