Intraday Anomalies and Market Efficiency: A Trading Robot Analysis

22 Pages Posted: 9 May 2014

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Luis A. Gil-Alana

University of Navarra - Department of Economics

Oleksiy Plastun

Sumy State University

Inna Makarenko

National Bank of Ukraine - Ukrainian Academy of Banking of the National Bank of Ukraine

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Date Written: April 8, 2014

Abstract

One of the leading criticisms of the Efficient Market Hypothesis (EMH) is the presence of so-called "anomalies", i.e. empirical evidence of abnormal behaviour of asset prices which is inconsistent with market efficiency. However, most studies do not take into account transaction costs. Their existence implies that in fact traders might not be able to make abnormal profits. This paper examines whether or not anomalies such as intraday or time of the day effects give rise to exploitable profit opportunities by replicating the actions of traders. Specifically, the analysis is based on a trading robot which simulates their behaviour, and incorporates variable transaction costs (spreads). The results suggest that trading strategies aimed at exploiting daily patterns do not generate extra profits. Further, there are no significant differences between sub-periods (2005-2006 – "normal"; 2007-2009 – "crisis"; 2010-2011 – "post-crisis").

Keywords: efficient market hypothesis, intraday patterns, time of the day anomaly, trading strategy

JEL Classification: G120, C630

Suggested Citation

Caporale, Guglielmo Maria and Gil-Alana, Luis A. and Plastun, Oleksiy and Makarenko, Inna, Intraday Anomalies and Market Efficiency: A Trading Robot Analysis (April 8, 2014). CESifo Working Paper Series No. 4752, Available at SSRN: https://ssrn.com/abstract=2434455

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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London South Bank University ( email )

Centre for Monetary and Financial Economics
London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Luis A. Gil-Alana

University of Navarra - Department of Economics ( email )

Campus de Arrosadia
Pamplona, 31006
Spain

Oleksiy Plastun

Sumy State University ( email )

Rymskyi-Korsakov str., 2
Sumy, 40000
Ukraine

Inna Makarenko

National Bank of Ukraine - Ukrainian Academy of Banking of the National Bank of Ukraine

57, Petropavlivska str.
Sumy, 40030
Ukraine

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