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)
for Bitcoin BTC tickers down $36,562 trading. EMH is a
controversial theory that the researchers claim
contributed to the development of models capable of
outperforming the hodl strategy by nearly 300% in
simulated crypto portfolios.
According to their research paper:
“We manage to generate models whose forecasts give investors the ability to record higher profits than the ones they would have if they followed the well-known buy and hold strategy.”
At the heart of EMH is the idea that an asset’s share
price reflects its fair market value and all applicable
market information. If true, it would be impossible to
outperform the market by trying to time it or by
predicting winning stocks intuitively.
Typically, proponents of EMH suggest that rather than
trying to beat the market with well-timed undervalued
stock picks, investors should put funds in low-cost
passive portfolios.
Meanwhile, opponents of EMH tend to dismiss this line of reasoning by pointing out that some investors, such as Warren Buffet, have made entire careers out of beating the market.
According to the research team in Greece, whose research
in the aforementioned paper was limited to observations on
the Bitcoin market, EMH can be applied to cryptocurrency
trading as a replacement for the standard “buy and hold,”
or hodling, approach to avoiding market volatility.
To test this, the researchers developed four distinct
artificial intelligence models trained with multiple data
sets. After training and testing, they selected models
optimized against both “beat the market” and hodling
strategies.
According to the team, the optimal model beat baseline
returns by as much as 297%. This lends some credence to
the idea that EMH can be a useful tool for Bitcoin and
cryptocurrency traders. However, it bears mention the
authors conducted their research using historical data and
simulated portfolio management.
The results of this study, while empirical, may do little
to change the minds of those with a strong opinion against
the efficacy of EMH.