The efficient market hypothesis through the eyes of an artificial technical analyst

The academic literature has been reluctant to accept technical analysis as a rational strategy of traders in financial markets. In practice traders and analysts heavily use technical analysis to make investment decisions. To resolve this incongruence the aim of this study is to translate technical analysis into a rigorous formal framework and to investigate its potential failure or success. To avoid subjectivism we design an Artificial Technical Analyst. The empirical study presents the evidence of past market inefficiencies observed on the Tokyo Stock Exchange. The market can be perceived as inefficient if the technical analyst's transaction costs are below the break-even level derived from technical analysis. (English)