behavioral finance
First of all , I’d like to define the Random walk hypothesis , since it’s consistent with the Efficient Market Hypothesis :
Random walk hypothesis is a financial theory stating that stock market prices evolve according to a random walk and thus cannot be predicted , it indicates that the market and stocks could be just as random as flipping a coin , and there is no correlation between past results and the present ones .
However , Martin Weber (behaviorist) , Professor Andrew W. Lo , and Professor Archie Craig MacKinlay presented evidences (a number of tests and studies ) that reportedly support the view that there are trends in the stock market and that the stock market is somewhat predictable . Using an equation , they figure out the trends that have been unfolded .
Historically, there was a very close link between EMH , the Random walk hypothesis , and then the Martingale model . (which is a model of a fair game where knowledge of past events never helps predict the mean of the future winnings ) . The Efficient-Market Hypothesis was developed by Professor Eugene Fama 1965. It was widely accepted up until the 1990s, when behavioral finance economists , who had been a fringe element, became mainstream . Empirical analyses have consistently found problems with the efficient-market hypothesis .
Efficient Market Hypothesis : (EMH) is the theory behind efficient capital markets. An efficient capital market is one in which security prices reflect and rapidly adjust to all new information. In other words , it asserts that financial markets are "informationally efficient". In consequence of this, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made.
It has been argued that the stock market is “micro efficient” but not “macro efficient”. The main proponent of this view was Samuelson, who asserted that the EMH is much better
Random walk hypothesis is a financial theory stating that stock market prices evolve according to a random walk and thus cannot be predicted , it indicates that the market and stocks could be just as random as flipping a coin , and there is no correlation between past results and the present ones .
However , Martin Weber (behaviorist) , Professor Andrew W. Lo , and Professor Archie Craig MacKinlay presented evidences (a number of tests and studies ) that reportedly support the view that there are trends in the stock market and that the stock market is somewhat predictable . Using an equation , they figure out the trends that have been unfolded .
Historically, there was a very close link between EMH , the Random walk hypothesis , and then the Martingale model . (which is a model of a fair game where knowledge of past events never helps predict the mean of the future winnings ) . The Efficient-Market Hypothesis was developed by Professor Eugene Fama 1965. It was widely accepted up until the 1990s, when behavioral finance economists , who had been a fringe element, became mainstream . Empirical analyses have consistently found problems with the efficient-market hypothesis .
Efficient Market Hypothesis : (EMH) is the theory behind efficient capital markets. An efficient capital market is one in which security prices reflect and rapidly adjust to all new information. In other words , it asserts that financial markets are "informationally efficient". In consequence of this, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made.
It has been argued that the stock market is “micro efficient” but not “macro efficient”. The main proponent of this view was Samuelson, who asserted that the EMH is much better