Tests of weak form efficiency in the Australian and American futures market

Crew, Sue. (1997). Tests of weak form efficiency in the Australian and American futures market Master's Thesis, School of Business, The University of Queensland.

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Author Crew, Sue.
Thesis Title Tests of weak form efficiency in the Australian and American futures market
School, Centre or Institute School of Business
Institution The University of Queensland
Publication date 1997
Thesis type Master's Thesis
Total pages 135
Language eng
Subjects 1503 Business and Management
Formatted abstract
The primary objective of this study is to test the weak form of market efficiency. The markets used in this study are the Australian ten year bond and share price index futures markets and the American soybeans and heating oil futures markets.

As a prelude to this study an overview of the Australian and American financial markets are discussed, the theory of market efficiency is examined, followed by discussions of empirical studies and trading systems. Weak form market efficiency tests such as serial correlation, runs tests and trading system simulation tests were conducted from 1985 to 1996.

Whilst the tests of data using serial correlation analysis and runs tests showed slight deviation from the Efficient Market Hypothesis, the overall results support the view that the Australian and American futures markets are weak form efficient.

Trading simulation tests were used to generate out of sample trading returns from 1985 to 1996 using 6 different trading systems. These trading system results were analysed and compared with the naive buy and hold policy and the Sharpe ratio to determine whether the amount of risk for each trading system was commensurate with the return.

Four out of the six simulated trading systems showed significant annual returns. These returns were not consistent over time and may have been attributed to chance. The weak form efficient hypothesis was validated in that excess returns could not be made by using technical trading systems and past data. Thus the trading system results supported weak fonI1 efficiency in the Australian and American futures markets.

Trading systems were also found not to be correlated, thus there was little evidence to support the hypothesis that trading systems contribute to price distortion in the financial markets.

Document type: Thesis
Collection: UQ Theses (non-RHD) - UQ staff and students only
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Created: Thu, 30 Sep 2010, 12:50:18 EST by Muhammad Noman Ali on behalf of Social Sciences and Humanities Library Service