- According to EMH, you can't use past data to predict prices
- Researchers used historical data for their experiment
Researchers from a leading Greek university tested the “efficient market hypothesis” on returns from Bitcoin and developed an “optimal model” according to the study.
A team of academic researchers from the International Hellenic University and Democritus University of Thrace in Greece recently published a paper supporting the “efficient market hypothesis” (EMH) vs. the “buy and hodl” strategy for Bitcoin.
What is the efficient market hypothesis?
The Efficient Market Hypothesis (EMH) is a theory that suggests that financial markets are efficient and that it is difficult or impossible to consistently achieve higher-than-average returns by using information that is publicly available. The central idea behind the Efficient Market Hypothesis is that asset prices reflect all available information, and therefore, it is not possible to gain an edge in the market by analyzing and acting on that information.
Pros and cons
Supports of EMH suggest investors put funds in low-cost passive portfolios rather than try to beat the market with assets that are about to break out. However, EMH has its fair share of critics, many of whom point out that you can make a fortune out of beating the market, which quite a few investors have.
The observations of the research team in Greece were limited to the Bitcoin market. They claim one can apply EMH to Bitcoin trading instead of the “buy and hodl” strategy and avoid market volatility in the process.
The weaknesses of the experiment
The team tested their hypothesis by creating four AI models trained on multiple data sets, which seems to contract the principles of EMH itself – that you can’t generate returns by using past data as the data is already reflected in asset prices.
However, the team claims their models beat baseline returns by around 300%. The results of the study aren’t likely to change critics’ minds.
