TY - JOUR
AU - Praetz, Peter D.
AB -  MARCH 1976 RATES OF RETURN ON FILTER TESTS PETER D. PRAETZ* I. INTRODUCTION THIS PAPER DERIVES exact expressions for the mean and variance of rates of return of the investment strategies under filter tests assuming the underlying stochastic process for stock price changes is a random walk. Filter tests have been used extensively by Alexander, I Fama and Blume/ and Dryden? to test the efficient market theory. The essential feature of the test procedure involves comparing the actual rates of return achieved under the filter rules with those obtained from a buy-and-hold investment policy, which serves as a bench-mark for the comparison. However, from our expressions for expected returns, it is obvious that this is not a fair test as returns from buy-and-hold are far greater than returns from operating filter rules. Thus all previous comparisons are invalid and any future work needs to use an adjusted performance measure, which removes that bias present in the current approach. II. THE STATISTICAL REPRESENTATION OF FILTER RETURNS We assume the sequence of price changes, {ej ; j= I,n}, is normally and independently distributed with mean m and variance v i.e. it follows a random walk (in the logarithmic sense) and 
TI - RATES OF RETURN ON FILTER TESTS
JF - The Journal of Finance
DO - 10.1111/j.1540-6261.1976.tb03197.x
DA - 1976-03-01
UR - https://www.deepdyve.com/lp/wiley/rates-of-return-on-filter-tests-H8VqiHRNpX
SP - 71
VL - 31
IS - 1
DP - DeepDyve
ER -