COMPARATIVE ANALYSIS OF INVESTMENT INSTRUMENTS DYNAMICS IN THE CONTEXT OF THE EFFICIENT MARKET HYPOTHESIS

Abstract

At present, there are several theories (hypotheses) for understanding and predicting the dynamics of the financial markets. One of the theories is the Efficient Market Hypothesis (EMH). The main assumption of the EMH is that prices follow the random route and that there is independence between past and future increments of prices. However, there is no single approach to the methodology that verifies the fulfillment of this requirement. The paper utilizes daily gold price data, currency pair EUR / USD and Bitcoin from January 2012 to October 2018 to test for the weak-form efficiency of the following markets using several statistical tools namely – constructing regression equations and checking them for statistical significance; checking for auto-correlation; Durbin–Watson Test, Breusch-Godfrey serial correlation LM-test, Augmented Dickey-Fuller Unit Root test (ADF test) and Runs test. The comparative analysis was applied to the obtained results. This allowed not only to identify the most effective approaches to assessing the adequacy of each of the markets, but also to explore the characteristics, the biggest differences and common features of these markets that are important practical information for making investment decisions. In conclusion, it was found that the most effective tool for establishing autocorrelation between events was the Brousha-Godfrey test: firstly, this test was the most sensitive, secondly, it provides an opportunity not only to establish the presence of autocorrelation, but also to determine its order. A recent study found that the most promising for technical analysis is the Bitcoin cryptocurrency market, since it allows to establish connections between the previous and next prices (there is 6-10 order autocorrelation). This is the basis for a more detailed study of the retrospective data Bitcoin dynamics to predict future prices. Gold and currency markets EUR/USD, in contrast, fully correspond to the hypothesis of an efficient market in a weak form. Therefore, making investment decisions in these markets, it would be preferable to use tools of fundamental analysis.