Technical analysis versus market efficiency - a genetic programming approach

Colin Fyfe, John Paul Marney and Heather Tarbert

Applied Financial Economics, 1999, vol. 9, issue 2, 183-191

Abstract: In the paper the authors maintain that the prevalence of technical analysis in professional investment argues that such techniques should perhaps be taken more seriously by academics. The new technique of genetic programming is used to investigate a long time series of price data for a quoted property investment company, to discern whether there are any patterns in the data which could be used for technical trading purposes. A successful buy rule is found which generates returns in excess of what would be expected from the best-fitting null time-series model. Nevertheless, this turns out to be a more sophisticated variant of the buy and hold rule, which the authors term timing specific buy and hold. Although the rule does outperform simple buy and hold, it really does not provide sufficient grounds for the rejection of the efficient market hypothesis, though it does suggest that further investigation of the specific conditions of applicability of the EMH may be appropriate.

Date: 1999
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DOI: 10.1080/096031099332447

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