Is the Dow Jones Industrial Average Even Weak-Form Market Efficient?

Abstract

The Efficient Market Hypothesis (EMH), in its weak-form, postulates that future returns cannot be predicted by strategies involving mechanical and technical trading rules. This study investigates the weak-form of the EMH on DJIA component stocks using two mechanical trading strategies: 1) Price gain over the previous twelve months and 2) Contrarian twelve months reversal strategy. The current forty-four-year study ending in 2018 exhibits no anomaly or a pocket of inefficiency in the EMH either before or after transaction costs. The DJIA appears to be fully efficient with regard to the weak-form hypothesis of two possible price momentum strategies.