Efficient market hypothesis: a ruinous implication for Portugese stock market

The advocates of the efficient market hypothesis recommend buying the market index for the long run, the implication for the Portuguese investors are to buy the PSI-20 index and hold it for at least 15 years. In this paper, we compare two other strategies for PSI-20 over the period 1999 to 2020. The first strategy is based on moving average trading rules and the second strategy, Gold Momentum Strategy (GMS), is based on switching between gold and PSI-20 based on semi-annual performance. Our findings suggest that the moving average trading rules beat the buy and hold strategy by more than 10% per year over the entire period and each sub-period considering both risk and transaction costs. For the second strategy, GMS which is based on comparing the performance of the PSI-20 and the gold index on semi-annual basis and go with the best of two for the next 6 months, we find similar results as the moving average trading rules.