Home > Working Papers

Working Paper 2006-046B

"The Adaptive Markets Hypothesis: Evidence from the Foreign Exchange Market"
by Christopher J. Neely, Paul A. Weller, and Joshua M. Ulrich

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.

Full Text - Acrobat PDF (648k)

Notify Me of Updates for:
Category > Applied Econometrics
Category > Finance
Category > International
Author > Christopher J. Neely
Research Papers and Publications: JEL Code > F31
Research Papers and Publications: JEL Code > G14
Research Papers and Publications: JEL Code > G11