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The Adaptive Markets Hypothesis: Evidence from the Foreign Exchange Market

Published online by Cambridge University Press:  01 April 2009

Christopher J. Neely ,
Paul A. Weller  and
Joshua M. Ulrich
Christopher J. Neely
Affiliation:
Federal Reserve Bank of St. Louis, PO Box 442, St. Louis, MO 63166. neely@stls.frb.org
Paul A. Weller
Affiliation:
Tippie College of Business, University of Iowa, 21 E. Market St., Iowa City, IA 52245. paul-weller@uiowa.edu
Joshua M. Ulrich
Affiliation:
joshua.m.ulrich@gmail.com
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Abstract

We analyze the intertemporal stability of excess returns to technical trading rules in the foreign exchange market by conducting true, out-of-sample tests on previously studied rules. The excess returns of the 1970s and 1980s were genuine and not just the result of data mining. But these profit opportunities had disappeared by the early 1990s for filter and moving average rules. Returns to less-studied rules also have declined but have probably not completely disappeared. High volatility prevents precise estimation of mean returns. These regularities are consistent with the Adaptive Markets Hypothesis (Lo (2004)), but not with the Efficient Markets Hypothesis.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 44 , Issue 2 , April 2009 , pp. 467 - 488
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2009

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