16
votes
Do markets really follow a random walk or is this idea outdated?
No, the idea is not outdated. Fama (1970, JF) summarises the early research on stock price behaviour and defines an efficient market as follows:
A market in which prices always ''fully reflect'' ...
- 16.4k
10
votes
Accepted
Does the existence of anomalies disprove the efficient markets hypotheses?
If one finds an anomaly relative to some asset pricing model, there are three possibilities:
The anomaly you "found" actually isn't there: you're overfitting the data, found a spurious result.
The ...
- 7,024
3
votes
What is a martingale?
There are many good answers already, but I give this one just to provide some additional intuition:
The simplest random walk is tossing a coin several times: heads means one up, tails means one down. ...
- 27.7k
3
votes
Asset Pricing and inferences - Intercept and relationship to returns
Based on your linked question/answer you should carefully notice two separate concepts of the term alpha.
As stated in my answer here, we have to distinguish between empirically testing asset pricing ...
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3
votes
Who benefits from more fair market?
You might find this paper interesting: "Does Finance Benefit Society?"
It's a very complicated question and in my opinion the above paper provides a nuanced answer.
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2
votes
Does the existence of anomalies disprove the efficient markets hypotheses?
I have a paper that argues that the distribution of returns cannot have a mean. I argue that prices are data and that returns are not data. Rather, returns are transformations of data. Therefore, ...
- 4,329
2
votes
Why do stock prices follow a martingale?
It only means that the directions of future movements of stock prices are impossible to forecast.
For a more mathematical explanation, consider this document.
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1
vote
Efficient market hypothesis and martingales
Your book is right. Samuleson--you'll find his name written all over EMH's history--proved it in 1973.
https://www.jstor.org/stable/3003046?seq=1#metadata_info_tab_contents
The pertinent section, &...
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1
vote
Asset Pricing and inferences - Intercept and relationship to returns
In your case, there are five elements that aggregate into your portfolio return. Just treat the intercept as a fifth factor for now. We'll come back to what it means in a second. But you should be ...
- 5,141
1
vote
Joint tests of market efficiency - Is it possible to test market efficiency with either one?
When markets are said to be efficient then the expectation is that there is no excess returns (alpha).
The expected return is basically a model of forecasting returns such as CAPM.
So basically you ...
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