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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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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Cointegration between prices and dividends. How do I get the following expression?

Actually, I have two questions: 1. Let us assume that expected returns are constant. Then, we have the following expression for how the prices should be determined, provided that the operators are ...
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Proof that points to an alternative explanation for the absence of autocorrelation in price movement

The absence of linear autocorrelation in asset price movement has been empirically observed countless times. It is usually accompanied by an explanation that goes something like this: If there was ...
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Why is it that returns at the efficient market hypothesis has to be risk-adjusted?

Let us assume the following situation: Average market return: $R_M = 8\%$ Risk-free rate: $R_F = 2\%$ Actual return of share A after one year: $R_{A} = 15\%$ Actual return of share B after one year: $...
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Are BARRA's Multiple-Factor Risk models rational asset pricing models?

Barra's Multiple-Factor Models for risk (e.g. USE3, USE4, CNE5) are much like those models used in empirical asset pricing studies such as CAPM, Fama-French three-factor model and others. I'm not ...
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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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Latency (market updates) and link to market efficiency

In the book by Lehalle and laruelle - "market microstructure in practice" - "The trading activity of HFT updates limit orderbooks at a higher rate than the round trip for any non-...
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Good performance of naive forecasting in efficient markets

I am doing spot price forecasting for a market, and so far, the naive forecasting model, which forecasts with the last observed prices, is the best forecasting model. I know that it might be because ...
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