TY - JOUR
T1 - On equity market inefficiency during the COVID-19 pandemic
AU - Navratil, Robert
AU - Taylor, Stephen
AU - Vecer, Jan
N1 - Publisher Copyright:
© 2021
PY - 2021/10
Y1 - 2021/10
N2 - We show that during the weeks following the initiation of the COVID-19 pandemic, the United States equity market was inefficient. This is demonstrated by showing that utility maximizing agents over the time period ranging from mid-February to late March 2020 can generate statistically significant profits by utilizing only historical price and virus related data to forecast future equity ETF returns. We generalize Merton's optimal portfolio problem using a novel method based upon a likelihood ratio in order to construct a dynamic trading strategy for utility maximizing agents. These strategies are shown to have statistically significant profitability and strong risk and performance statistics during the COVID-19 time-frame.
AB - We show that during the weeks following the initiation of the COVID-19 pandemic, the United States equity market was inefficient. This is demonstrated by showing that utility maximizing agents over the time period ranging from mid-February to late March 2020 can generate statistically significant profits by utilizing only historical price and virus related data to forecast future equity ETF returns. We generalize Merton's optimal portfolio problem using a novel method based upon a likelihood ratio in order to construct a dynamic trading strategy for utility maximizing agents. These strategies are shown to have statistically significant profitability and strong risk and performance statistics during the COVID-19 time-frame.
KW - Efficient market hypothesis
KW - Merton's optimal portfolio
KW - Utility maximization
UR - http://www.scopus.com/inward/record.url?scp=85109107126&partnerID=8YFLogxK
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U2 - 10.1016/j.irfa.2021.101820
DO - 10.1016/j.irfa.2021.101820
M3 - Article
AN - SCOPUS:85109107126
SN - 1057-5219
VL - 77
JO - International Review of Financial Analysis
JF - International Review of Financial Analysis
M1 - 101820
ER -