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10
votes
4answers
5k views

What is a martingale?

What is a martingale and how it compares with a random walk in the context of the Efficient Market Hypothesis?
7
votes
4answers
477 views

Does Modern Portfolio Theory align with EMH?

I came to the conclusion that in literature Markowitz' Portfolio Theory is believed to be compliant with the Efficient Market Hypothesis. The weakest form states that the current price fully ...
4
votes
1answer
102 views

What are the empirical limitations to testing market efficiency?

I have encountered a rather elegant argument about the limitations of empirically testing for market efficiency, involving the central point that we do not know whether a result is due to the "true ...
3
votes
2answers
176 views

Martingale Stock Prices

In http://www.principlesofforecasting.com/files/pdf/Granger-stockmarket.pdf Granger makes survey of some arguments. In section I there are two hypothesis H01, and H02. H01: Stock prices are a ...
2
votes
1answer
145 views

Assumptions based on non-martingale?

Quantitative finance formular are mostly based on martingales, Poisson jump, GBM, CEV, etc.. The logic behind it is that martingale means the future could not be predicted, or, EMH (Efficient-market ...
1
vote
3answers
75 views

What is the difference between market equilibrium and market efficiency? equilibrium implies efficiency?

The market efficiency hypothesis means securities are traded at their fair price. If the market is at the equilibrium, does it mean the market is efficiency? If equilibrium cannot implies ...
1
vote
2answers
83 views

Does No arbitrage(NA) imply efficient markets (EMH)?

The EMH states that stocks are traded at its fair values. This means there is no arbitrage strategy in efficient markets. However, if the market is no arbitrage, can we conclude the market is ...
0
votes
1answer
44 views

Is the stock price process a martingale or a random walk in efficient markets?

What is the difference between RWH and EMH? In efficient market, the price will be fully reflected by available information. If there is no news, the price would be unchanged. If there is a news, ...