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Martingales, Efficient Market Hypothesis and Kolmogorov’s Complexity Theory

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  • Amaresh Das

Abstract

Efficient market theory states that financial markets can process information instantly. Empirical observations have challenged the stricter form of the efficient market hypothesis (EMH). These empirical observations and theoretical considerations show that price changes are difficult to predict if one starts from the time series of price changes. This paper provides an explanation in terms of algorithmic complexity theory of Kolmogorov that makes a clearer connection between the efficient market hypothesis and the unpredictable character of stock returns.

Suggested Citation

  • Amaresh Das, 2011. "Martingales, Efficient Market Hypothesis and Kolmogorov’s Complexity Theory," Information Management and Business Review, AMH International, vol. 2(6), pages 252-258, June.
    • Handle: RePEc:rnd:arimbr:v:2:y:2011:i:6:id:41
    DOI: 10.22610/imbr.v2i6.905
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