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Using Mechanical Trading Systems to Evaluate the Weak Form Efficiency of Futures Markets

Published online by Cambridge University Press:  28 April 2015

Paul E. Peterson  and
Raymond M. Leuthold
Paul E. Peterson
Affiliation:
Department of Agricultural Economics, University of Illinois, Urbana-Champaign
Raymond M. Leuthold
Affiliation:
Department of Agricultural Economics, University of Illinois, Urbana-Champaign
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Extract

An efficient market has been described by Fama (1970) as one in which prices always fully reflect all available information. Of the three tests of efficiency discussed, the weak form test is concerned with the randomness of price movements and measures the ability to predict future price changes from past and present changes. There are two general ways to evaluate weak form efficiency: statistical tests and mechanical trading rules. Statistical methods, including serial correlation, spectral analysis and nonparametric runs tests, permit hypothesis testing, but Fama and Blume (p. 227) point out that they may be of limited value with complex or irregular price structures.

Type
Research Article
Information
Journal of Agricultural and Applied Economics , Volume 14 , Issue 1 , July 1982 , pp. 147 - 151
Copyright
Copyright © Southern Agricultural Economics Association 1982

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