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Questions tagged [market-efficiency]

An efficient market is one where the market price is an unbiased estimate of the true value of the investment.

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if the​ risk-free interest rate​ increases, and nothing else changes, is the market portfolio still efficient?

I think the response is no but I don't know why If so, Stocks with betas greater than one will be buying opportunities and stocks with betas less than one will be selling opportunities because I can ...
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Volatility clustering and Behavioral Finance, possible explanation

Currently studying about time series modelling of financial data and faced the known GARCH$(p,q)$ model for modelling volatility. We observe that big changes are followed by large changes and vice ...
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“Dusty Corners of the Market” and Limits-to-Arbitrage

In his 21 November 2014 blog post, Dusty Corners of the Market, John Cochrane seems to imply that certain areas of the market tend to be more resilient to the forces of arbitrage and efficiency. The ...
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Who benefits from more fair market?

An year ago, I asked the hedge fund owner I worked for: "What is the main benefit for the people, the society and the market from what the hedge funds do?". He simply answered that "They make the ...
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If markets are efficient, why are most returns systematically high?

Suppose markets are perfectly efficient and asset prices reflect all available information. Under this assumption one expects current prices to be non-biased estimators of future prices. It seems to ...
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Why does the Weak Form of Market Efficiency and Markov Property hold?

This question is to do with a paragraph in Hull (Options and other Derivatives) He explains that Stock Prices usually follow a Markov Property, where the current price of the stock contains all the ...
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Mathematical Representation of Adaptive Markets Hypothesis

It has been about 13 years since Andrew Lo published The Adaptive Markets Hypothesis. It provides valid criticism to Efficient Markets Hypothesis and brings lots of innovation over it. Unfortunately, ...
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Why do anomalies disappear after they get detected?

In financial markets, anomalies refer to situations when a security or group of securities performs contrary to the notion of efficient markets, where security prices are said to reflect all available ...
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Does the rise in passive investing make the markets less efficient?

The general idea of efficiency in financial markets is that information is being processed almost instantaneously because active investors arbitrage away any arising price discrepancies. On the other ...
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Does the existence of anomalies disprove the efficient markets hypotheses?

Is the existence of anomalies to the EMH sufficient to disprove the EMH, or do we need a persistent anomaly which the financial markets cannot correct to disprove the EMH? This question is for the ...
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Do underlying assets have a no-arbitrage price?

Can it be shown that the Fundamental Theorem on Asset Pricing (FTAP) applies to underlying assets -- namely bonds, equities, and commodities? FTAP says that assets have no-arbitrage prices equal to ...
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Is there any good academic references for Forex inefficiency? [closed]

I am PhD in computer science, and I am pretty much clueless where can I look for good journals or conferences for Forex that talked about its inefficiency. Is there any good journals, conferences that ...
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Does cointegration contradict the market efficiency?

It is generally assumed that market prices follow random walks, implying market efficiency. However, one could find that some combinations of the "random walks" are cointegrated. Does this ...
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Do efficient market hypothesis and random walk theory convey the same concept?

According to investopedia efficent market hypothesis is The efficient market hypothesis (EMH) is an investment theory that states it is impossible to "beat the market" because stock market ...
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Problem with overlapping data when testing futures market efficiency

In my case non-overlapping data would represent the scenario where futures prices (3 months) do not correspond to the futures spot prices in terms of delivery date. For example, futures settlement ...
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Joint tests of market efficiency - Is it possible to test market efficiency with either one?

Tests of market efficiency are the joint tests of (1)the market is efficient and (2) expected return model. Please help me (a) explain this and (b) is it possible to test market efficiency with ...
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Kurtosis in asset logarithmic returns

Assets such as stocks usually display kurtosis in their logarithmic returns. However, their logarithmic returns in a time interval $n$ are the sum of smaller logarithmic returns in $1/n$ time ...
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What are the main market efficiency measures in the stock market?

I'm going to test for the effect of the change in market efficiency on the stock market portfolio, and, I want to know what are the main measures known in the academic literature in order to compare ...