Intraday Anomalies and Market Efficiency: A Trading Robot Analysis

Guglielmo Maria Caporale, Luis Gil-Alana, Alex Plastun and Inna Makarenko ()

No 1377, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: One of the leading criticisms of the Efficient Market Hypothesis (EMH) is the presence of so-called “anomalies”, i.e. empirical evidence of abnormal behaviour of asset prices which is inconsistent with market efficiency. However, most studies do not take into account transaction costs. Their existence implies that in fact traders might not be able to make abnormal profits. This paper examines whether or not anomalies such as intraday or time of the day effects give rise to exploitable profit opportunities by replicating the actions of traders. Specifically, the analysis is based on a trading robot which simulates their behaviour, and incorporates variable transaction costs (spreads). The results suggest that trading strategies aimed at exploiting daily patterns do not generate extra profits. Further, there are no significant differences between sub-periods (2005-2006 – “normal” , 2007- 2009 – “crisis” , 2010-2011 – “post-crisis).

Keywords: Efficient Market Hypothesis; intraday patterns; time of the day anomaly; trading strategy (search for similar items in EconPapers)
JEL-codes: C63 G12 (search for similar items in EconPapers)
Pages: 20 p.
Date: 2014
New Economics Papers: this item is included in nep-cmp and nep-mst
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Related works:
Journal Article: Intraday Anomalies and Market Efficiency: A Trading Robot Analysis (2016)
Working Paper: Intraday Anomalies and Market Efficiency: A Trading Robot Analysis (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp1377

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