Dependency and efficiency in the London terminal markets

✍ Scribed by Peter J. W. N. Bird

• Book ID: 102843852
• Publisher: John Wiley and Sons
• Year: 1985
• Tongue: English
• Weight: 833 KB
• Volume: 5
• Category: Article
• ISSN: 0270-7314
• DOI: 10.1002/fut.3990050312

✦ Synopsis

Bird

n efficient market as summarized by Fama (1970) is one in which prices always A "fully reflect" available information. For weak-form efficiency the information set is simply the history of market prices. Rejection of the hypothesis implies two tasks. The first is to demonstrate statistical dependencies in the history of price changes; this is referred to as testing for dependency. The second, testing for efficiency, is to show that this dependency can be incorporated in a trading strategy that consistently outperforms the naive strategy of buying at the start of the trading period and selling at its end ("buy-and-hold"). Examples of weak-form tests of efficiency in futures markets are Houthakker (1961), Smidt (1965), Stevenson and Bear (1970), Leuthold (1972), andPeterson andLeuthold (1982); studies of the London Metal Exchange have been undertaken by the present author (Bird, 1985).

This article reports the result of weak-form efficiency tests applied to the three major London "soft" futures (or "terminal") markets for cocoa, coffee, and sugar.