Testing the Efficient Market Hypothesis in the Australian Share Market using a Differential Evolutionary Algorithm

Abstract

The proposition that a relatively new technology such as a Differential Evolutionary Algorithm (DEA) can violate the weak form of the Efficient Markets Hypothesis is tested using daily data from the Australian share market from 2000 until 2008. An options trading strategy based on forecasts from a DEA is shown to perform better than a buy and hold strategy over parts of the sample space and, on average, over all of it. The paper concludes speculators may make supernormal profits from new methodologies however that such profits are unlikely to be sustained.