AN EMPIRICAL TEST OF WEAK-FORM MARKET EFFICIENCY FOR THE POST WORLD WAR II PERIOD, 1947-1981

摘要

In this study, four trading rules which have been widely used in earlier studies were tested along with a newly developed trading rule over a time period with a very different stock price structure than that used in most of the earlier studies. The new rule is different from the other tested rules in that it is designed to capture cyclical swings, if any, but at the same time to avoid the distortions of numerous short swings in price movement. The time series used are 30 randomly selected individual stock price sequences (daily).;The results were quite positive. We found that in terms of net rate of return, the newly developed decision rule defeats its comparative rule, the buy-and-hold rule, by a comfortable margin over the time periods tested (1966 - 1977 and 1966 - 1981). Of the five tested decision rules, only the newly developed rule outperforms the buy-and-hold rule; the other four widely used rules, by varying degrees, perform worse.;We also apply the new rule to the S&P 500 stock composite index over the entire post-World War II period (1951 - 1981) and two subperiods. The results show that during subperiod one, from January 1951 to December 1965, the new trading rule was substantially outperformed by the buy-and-hold rule. However, during subperiod two, from January 1966 to December 1981, the result is totally different: the buy-and-hold result was outperformed by the new trading rule by a comfortable margin.;In all, by using two tests we have confirmed that the testing results of most of the former studies are correct. However, we have also shown that their results are very much time-period specific. This means that their results should be used to draw a general conclusion about market efficiency very cautiously. In addition, when it comes to drawing a conclusion about the weak-form market efficiency of the American capital market, the evidence compiled in this study, especially the results for the period January 1966 to December 1977, is probably more convincing than earlier studies.