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Using Mechanical Trading Systems to Evaluate the Weak Form Efficiency of Futures Markets

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  • Peterson, Paul E.
  • Leuthold, Raymond M.

Abstract

An efficient market has been described by Fama (1970) as one in which prices always fully reflect all available information. Of the three tests of efficiency discussed, the weak form test is concerned with the randomness of price movements and measures the ability to predict future price changes from past and present changes. There are two general ways to evaluate weak form efficiency: statistical tests and mechanical trading rules. Statistical methods, including serial correlation, spectral analysis and nonparametric runs tests, permit hypothesis testing, but Fama and Blume (p. 227) point out that they may be of limited value with complex or irregular price structures.

Suggested Citation

  • Peterson, Paul E. & Leuthold, Raymond M., 1982. "Using Mechanical Trading Systems to Evaluate the Weak Form Efficiency of Futures Markets," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 14(1), pages 147-151, July.
    • Handle: RePEc:cup:jagaec:v:14:y:1982:i:01:p:147-151_02
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    Cited by:

    1. Sanjay Sehgal & Asheesh Pandey, 2012. "Strategic Allocation, Asset Pricing and Prior Return Patterns: Evidence from Indian Commodity Market," Vision, , vol. 16(4), pages 273-281, December.
    2. Garcia, Philip & Hudson, Michael A. & Waller, Mark L., 1988. "The Pricing Efficiency Of Agricultural Futures Markets: An Analysis Of Previous Research Results," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 20(1), pages 1-12, July.
    3. Hauser, Robert J. & Anderson, Dane K., 1984. "Modifying Traditional Option Pricing Formulae For Options On Soybean Futures," 1984 Annual Meeting, August 5-8, Ithaca, New York 279099, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Anderson, John A. & Faff, Robert W., 2008. "Point and Figure charting: A computational methodology and trading rule performance in the S&P 500 futures market," International Review of Financial Analysis, Elsevier, vol. 17(1), pages 198-217.
    5. Blank, Steven C., 1989. "Research On Futures Markets: Issues, Approaches, And Empirical Findings," Western Journal of Agricultural Economics, Western Agricultural Economics Association, vol. 14(1), pages 1-14, July.
    6. Holt, Matthew T. & Brandt, Jon A., 1984. "Price Forecasting and Hedging to Enhance Prices and Reduce Risk," 1984 Annual Meeting, August 5-8, Ithaca, New York 278988, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    7. Unknown, 1990. "Structural Change in Livestock: Causes, Implications, Alternatives," Research Institute on Livestock Pricing 232728, Virginia Polytechnic Institute and State University, Department of Agricultural and Applied Economics.
    8. Pluhar, Darwin M. & Shafer, Carl E. & Sporleder, Thomas L., 1985. "Helmuth's Trading Technique: Further Evidence and Implications for Cattle Hedging Strategies 1975-1982," Staff Paper Series 257976, Texas A&M University, Department of Agricultural Economics.
    9. Cheol‐Ho Park & Scott H. Irwin, 2007. "What Do We Know About The Profitability Of Technical Analysis?," Journal of Economic Surveys, Wiley Blackwell, vol. 21(4), pages 786-826, September.
    10. Hauser, Rober J. & Neff, Steven A., 1984. "The Pricing Efficiency of the barge freight call session," Transportation Research Forum Proceedings 1980s 311697, Transportation Research Forum.
    11. Kastens, Terry L. & Schroeder, Ted C., 1996. "Efficiency Tests Of July Kansas City Wheat Futures," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 21(2), pages 1-12, December.
    12. John Anderson, 2003. "A Test of Weak-Form Market Efficiency in Australian Bank Bill Futures Calendar Spreads," School of Economics and Finance Discussion Papers and Working Papers Series 134, School of Economics and Finance, Queensland University of Technology.

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