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.
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Acknowledgements
We gratefully acknowledge financial support from the Canadian Social Sciences and Humanities Research Council. We thank Ian Davis for assistance with the computer coding. We thank, for their comments, seminar participants in the 14th International Conference on Computing in Economics and Finance, the Canadian Economics Association 2008 Annual Meeting, and the Fifth World Congress of the Bachelier Finance Society.
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Miles, S., Smith, B. (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. In: Dawid, H., Semmler, W. (eds) Computational Methods in Economic Dynamics. Dynamic Modeling and Econometrics in Economics and Finance, vol 13. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-16943-4_5
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DOI: https://doi.org/10.1007/978-3-642-16943-4_5
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