Introduction

According to the efficient markets hypothesis security prices should value information available to economic agents. An essential interpretative concept is the notion of no arbitrage. When there is no arbitrage, market returns should not be predictable. Several forms of efficiency can be identified, according to the type of information set used in the formation of expectations. In static return regressions the conditions for financial markets efficiency are not fulfilled, since there is evidence of return predictability in both the stock and housing markets. In a behavioural perspective this outcome could be the result of agent cognitive limits, due to the use of heuristic rules. Representativeness, availability and anchoring could determine under- or overvaluation of existing assets with respect to fundamental value. An important further aspect regards the proper use of prior information. The expectations hypothesis concerns the relations between the yields of fixed income securities with different term. While static spot rate spread regressions provide evidence of return extrapolation, as for the stock and housing markets, forward rate regressions confirm the predictions of the hypothesis, an outcome that may be related to their dynamic properties.