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Evaluation of stock market efficiency and selection of appropriate investment strategy
MALINOVÁ, Adéla
The subject of the thesis is testing the efficiency of the US stock market, determining its degree of efficiency, and recommending an appropriate investment strategy. The tests were applied to stocks of companies operating in the automotive and information technology industries. Data was obtained from online sources available at The Wall Street Journal and Yahoo Finance. The calculations were performed on a five-year period from 2016-2020. Market efficiency was tested using autocorrelation and run tests, the results of which basically confirmed a weak form of efficiency. However, using the alpha factor, the existence of undervalued and overvalued stocks was discovered, suggesting that the market does not behave entirely in line with the weak form of efficiency. A very good predictive ability of the alpha factor was verified, which could be used in an active investment strategy. In the technical analysis, the usefulness of oscillators and moving averages was tested. Above average investment results were recorded for the PROC and RSI oscillators. However, the success of these indicators was not absolute. It was not possible to determine the specifics of the stocks for which technical analysis indicators led to below-average returns, thus the success of technical analysis methods cannot be predicted in advance. Based on the findings, I recommend a passive investment strategy based on fundamental analysis to risk averse investors.
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