Degree Year

2011

Document Type

Thesis

Degree Name

Bachelor of Arts

Department

Economics

Advisor(s)

Ellis Tallman

Keywords

Asset, Allocation, Market, Crisis, Finance

Abstract

Using historic return inputs in a stylized computational financial market, this paper explores how participant outcomes are affected by the degree to which their asset allocation behavior responds to new market information. Findings support the efficient market hypothesis in that no alternate trading rule shows consistent improved outcomes relative to a full market exposure buy-and-hold strategy over the given time period. The only exception occurs briefly at the bottom of the 2008 financial crisis. Market participants that drastically alter market exposure in response to volatile returns, however, do outperform those who alter their exposure less drastically. Furthermore, the trading rules used here appear to offer a tradeoff between risk, return volatility and wealth development that is in-part at odds with efficient market hypothesis.

Included in

Economics Commons

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