Testing Efficiency of the Latvian Stock Market: An Evolutionary Perspective
21 Pages Posted: 11 Mar 2002
Date Written: February 20, 2002
Due to the recent foundation of the Latvian stock market, sufficient analysis of its efficiency has not yet been performed. Moreover, Latvia's supposed entrance in the European Union and the Euro zone in the following decade makes this research particularly interesting. The present paper reviews the paradigm of technical analysis as an alternative to the weak-form Efficient Market Hypothesis from an evolutionary perspective. It is shown that in the light of investors' bounded rationality technical analysis may have a valid theoretical framework. A test of the Latvian stock market weak-form efficiency by means of technical trading simulation is performed. Using Genetic Algorithms a problem of subjective selection and interpretation of technical indicator parameters is partially resolved. The test results indicate that the Latvian stock market might be inefficient and set up a ground for further research.
Keywords: Weak Form Efficiency, Genetic Algorithms, Latvian Stock Market
JEL Classification: C15, C61, G14, G15
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