Predictability of asset returns and the efficient market hypothesis

Arbeitspapier

This paper is concerned with empirical and theoretical basis of the Efficient Market Hypothesis (EMH). The paper begins with an overview of the statistical properties of asset returns at different frequencies (daily, weekly and monthly), and considers the evidence on return predictability, risk aversion and market efficiency. The paper then focuses on the theoretical foundation of the EMH, and show that market efficiency could co-exit with heterogeneous beliefs and individual irrationality so long as individual errors are cross sectionally weakly dependent in the sense defined by Chudik, Pesaran, and Tosetti (2010). But at times of market euphoria or gloom these individual errors are likely to become cross sectionally strongly dependent and the collective outcome could display significant departures from market efficiency. Market efficiency could be the norm, but it is likely to be punctuated with episodes of bubbles and crashes. The paper also considers if market inefficiencies (assuming that they exist) can be exploited for profit.

Objekt anzeigen

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: CESifo Working Paper ; No. 3116

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Asset Pricing; Trading Volume; Bond Interest Rates ; Information and Market Efficiency; Event Studies; Insider Trading
• Thema: market efficiency ; predictability ; heterogeneity of expectations ; forecast averaging ; equity ; premium puzzle ; Kapitalertrag ; Börsenkurs ; Effizienzmarktthese ; Erwartungstheorie ; Prognoseverfahren ; Equity Premium Puzzle ; Theorie ; Welt

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Pesaran, Mohammad Hashem
• Ereignis: Veröffentlichung
• (wer): Center for Economic Studies and ifo Institute (CESifo)
• (wo): Munich
• (wann): 2010

Weitere Informationen

• Handle: http://hdl.handle.net/10419/39035