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Beating the market? A mathematical puzzle for market efficiency.

DOI zum Zitieren der Version auf EPub Bayreuth: https://doi.org/10.15495/EPub_UBT_00006075
URN zum Zitieren der Version auf EPub Bayreuth: urn:nbn:de:bvb:703-epub-6075-8

Titelangaben

Baumann, Michael Heinrich:
Beating the market? A mathematical puzzle for market efficiency.
In: Decisions in Economics and Finance. Bd. 45 (2022) . - S. 279-325.
ISSN 1129-6569
DOI der Verlagsversion: https://doi.org/10.1007/s10203-021-00361-8

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Angaben zu Projekten

Projektfinanzierung: Bundesministerium für Bildung und Forschung
Hanns-Seidel-Stiftung
Promotionsstipendium.
Open Access funding enabled and organized by Projekt DEAL.

Abstract

The efficient market hypothesis is highly discussed in economic literature. In its strongest form, it states that there are no price trends. When weakening the non-trending assumption to arbitrary short, small, and fully unknown trends, we 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 think about predictable patterns nor has to estimate market parameters such as the trend’s sign like momentum traders have to do. That means, since the trader does not have to know any trend, even trends too small to find are enough to beat the market. Adjustments for risk and comparisons with buy-and-hold strategies do not satisfactorily solve the problem. In detail, we generalize results from the literature on control-based trading strategies to market settings without specific model assumptions, but with time-varying parameters in discrete and continuous time. We give closed-form formulae for the expected gain as well as the gain’s variance and generalize control-based trading rules to a setting where older information counts less. In addition, we perform an exemplary backtesting study taking transaction costs and bid-ask spreads into account and still observe - on average - positive gains.

Weitere Angaben

Publikationsform: Artikel in einer Zeitschrift
Zusätzliche Informationen (öffentlich sichtbar): A Correction to this article was published on 06 July 2023:
https://doi.org/10.1007/s10203-023-00405-1
Keywords: Technical analysis; Efficient market hypothesis; Robust positive expectation property; Simultaneously long short trading; Control-based trading strategies
Fachklassifikationen: Mathematics Subject Classification: 91G10; 91G99; 91B70
JEL Classification: C02; G11; G14
Themengebiete aus DDC: 300 Sozialwissenschaften > 330 Wirtschaft
500 Naturwissenschaften und Mathematik > 510 Mathematik
Institutionen der Universität: Fakultäten > Fakultät für Mathematik, Physik und Informatik > Mathematisches Institut > Lehrstuhl Mathematik V (Angewandte Mathematik)
Profilfelder > Advanced Fields > Nichtlineare Dynamik
Forschungseinrichtungen > Zentrale wissenschaftliche Einrichtungen > Bayreuther Zentrum für Modellierung und Simulation (MODUS)
Fakultäten
Fakultäten > Fakultät für Mathematik, Physik und Informatik
Fakultäten > Fakultät für Mathematik, Physik und Informatik > Mathematisches Institut
Profilfelder
Profilfelder > Advanced Fields
Forschungseinrichtungen
Forschungseinrichtungen > Zentrale wissenschaftliche Einrichtungen
Sprache: Englisch
Titel an der UBT entstanden: Ja
URN: urn:nbn:de:bvb:703-epub-6075-8
Eingestellt am: 25 Mrz 2022 08:51
Letzte Änderung: 28 Jul 2023 05:39
URI: https://epub.uni-bayreuth.de/id/eprint/6075

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