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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Veröffentlicht in:Computational economics Jg. 33; H. 2; S. 131 - 154
Hauptverfasser: Shmilovici, Armin, Kahiri, Yoav, Ben-Gal, Irad, Hauser, Shmuel
Format: Journal Article
Sprache:Englisch
Veröffentlicht: Boston Springer US 01.03.2009
Society for Computational Economics
Springer Nature B.V
Schriftenreihe:Computational Economics
Schlagworte:
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
Online-Zugang:Volltext
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Beschreibung
Zusammenfassung: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.
Bibliographie:SourceType-Scholarly Journals-1
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ISSN:0927-7099
1572-9974
DOI:10.1007/s10614-008-9153-3