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Developing a Trading Rule from the FTSE‐100 Stock Index Futures Contract: Evidence in Support of the EMH

Developing a Trading Rule from the FTSE‐100 Stock Index Futures Contract: Evidence in Support of... An extensive literature documents the predictability of both short and long horizon returns, over a wide range of sample periods, frequencies and markets. This predictability may represent weak form inefficiency, or it may be caused by a failure to account for a time‐variation in risk. We develop statistically reliable ex ante models of the returns on the FTSE‐100 stock index futures contract and test a simple trading rule based on the out‐of‐sample predictions from these models. We interpret the failure of our ex ante model to produce abnormal returns for a risk neutral investor as evidence in favour of the EMH. Our trading rule results clearly suggest that we should be careful in interpreting such ex ante models as evidence of financial market inefficiency. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Business Finance & Accounting Wiley

Developing a Trading Rule from the FTSE‐100 Stock Index Futures Contract: Evidence in Support of the EMH

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Publisher
Wiley
Copyright
Copyright © 1999 Wiley Subscription Services, Inc., A Wiley Company
ISSN
0306-686X
eISSN
1468-5957
DOI
10.1111/1468-5957.00255
Publisher site
See Article on Publisher Site

Abstract

An extensive literature documents the predictability of both short and long horizon returns, over a wide range of sample periods, frequencies and markets. This predictability may represent weak form inefficiency, or it may be caused by a failure to account for a time‐variation in risk. We develop statistically reliable ex ante models of the returns on the FTSE‐100 stock index futures contract and test a simple trading rule based on the out‐of‐sample predictions from these models. We interpret the failure of our ex ante model to produce abnormal returns for a risk neutral investor as evidence in favour of the EMH. Our trading rule results clearly suggest that we should be careful in interpreting such ex ante models as evidence of financial market inefficiency.

Journal

Journal of Business Finance & AccountingWiley

Published: Jan 1, 1999

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