Efficient Market Hypothesis and Forecasting
The efficient market hypothesis gives rise to forecasting tests that mirror those adopted when testing the optimality of a forecast in the context of a given information set. However, there are also important differences arising from the fact that market efficiency tests rely on establishing profitable trading opportunities in ‘real time’. Forecasters constantly search for predictable patterns and affect prices when they attempt to exploit trading opportunities. Stable forecasting patterns are therefore unlikely to persist for long periods of time and will self-destruct when discovered by a large number of investors. This gives rise to nonstationarities in the time series of financial returns and complicates both formal tests of market efficiency and the search for successful forecasting approaches.
|Date of creation:||Oct 2002|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Francis X. Diebold & Robert S. Mariano, 1994.
"Comparing Predictive Accuracy,"
NBER Technical Working Papers
0169, National Bureau of Economic Research, Inc.
- Diebold, Francis X & Mariano, Roberto S, 2002. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 134-44, January.
- Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
- Jensen, Michael C., 1978. "Some anomalous evidence regarding market efficiency," Journal of Financial Economics, Elsevier, vol. 6(2-3), pages 95-101.
- Pesaran, M. Hashem & Timmermann, Allan, 2002.
"Market timing and return prediction under model instability,"
Journal of Empirical Finance,
Elsevier, vol. 9(5), pages 495-510, December.
- M. Hashem Pesaran & Allan Timmermann, 2002. "Market timing and return prediction under model instability," LSE Research Online Documents on Economics 24932, London School of Economics and Political Science, LSE Library.
- Allan Timmermann & M. Hashem Pesaran, 2002. "Market Timing and Return Prediction under Model Instability," FMG Discussion Papers dp412, Financial Markets Group.
- Evans, George W, 1991. "Pitfalls in Testing for Explosive Bubbles in Asset Prices," American Economic Review, American Economic Association, vol. 81(4), pages 922-30, September.
- Lo, Andrew W. & Mackinlay, A. Craig, 1997.
"Maximizing Predictability In The Stock And Bond Markets,"
Cambridge University Press, vol. 1(01), pages 102-134, January.
- Lo, Andrew W. (Andrew Wen-Chuan) & MacKinlay, Archie Craig, 1955-, 1992. "Maximizing predictability in the stock and bond markets," Working papers 3450-92., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Andrew W. Lo & A. Craig MacKinlay, 1995. "Maximizing Predictability in the Stock and Bond Markets," NBER Working Papers 5027, National Bureau of Economic Research, Inc.
- Allan Timmermann & Halbert White & Ryan Sullivan, 1998.
"Data-Snooping, Technical Trading, Rule Performance and the Bootstrap,"
FMG Discussion Papers
dp303, Financial Markets Group.
- Ryan Sullivan & Allan Timmermann & Halbert White, 1999. "Data-Snooping, Technical Trading Rule Performance, and the Bootstrap," Journal of Finance, American Finance Association, vol. 54(5), pages 1647-1691, October.
- Sullivan, Ryan & Timmermann, Allan G & White, Halbert, 1998. "Data-Snooping, Technical Trading Rule Performance and the Bootstrap," CEPR Discussion Papers 1976, C.E.P.R. Discussion Papers.
- Bossaerts, Peter & Hillion, Pierre, 1999. "Implementing Statistical Criteria to Select Return Forecasting Models: What Do We Learn?," Review of Financial Studies, Society for Financial Studies, vol. 12(2), pages 405-28.
- Fama, Eugene F, 1991. " Efficient Capital Markets: II," Journal of Finance, American Finance Association, vol. 46(5), pages 1575-617, December.
- Douglas T. Breeden & Michael R Gibbons & Robert H. Litzenberger, . "Empirical Tests of the Consumption-Oriented CAPM," Rodney L. White Center for Financial Research Working Papers 7-89, Wharton School Rodney L. White Center for Financial Research.
- Timmermann, Allan G, 1993. "How Learning in Financial Markets Generates Excess Volatility and Predictability in Stock Prices," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 1135-45, November.
- Clive W.J. Granger, 1999. "Outline of forecast theory using generalized cost functions," Spanish Economic Review, Springer, vol. 1(2), pages 161-173.
- Josef Lakonishok, Seymour Smidt, 1988. "Are Seasonal Anomalies Real? A Ninety-Year Perspective," Review of Financial Studies, Society for Financial Studies, vol. 1(4), pages 403-425.
- Brock, W. & Lakonishok, J. & Lebaron, B., 1991.
"Simple Technical Trading Rules And The Stochastic Properties Of Stock Returns,"
90-22, Wisconsin Madison - Social Systems.
- Brock, William & Lakonishok, Josef & LeBaron, Blake, 1992. " Simple Technical Trading Rules and the Stochastic Properties of Stock Returns," Journal of Finance, American Finance Association, vol. 47(5), pages 1731-64, December.
- Hansen, Lars Peter & Singleton, Kenneth J, 1983. "Stochastic Consumption, Risk Aversion, and the Temporal Behavior of Asset Returns," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 249-65, April.
- Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
- Pesaran, M Hashem & Timmermann, Allan, 1995. " Predictability of Stock Returns: Robustness and Economic Significance," Journal of Finance, American Finance Association, vol. 50(4), pages 1201-28, September.
- Harrison, J. Michael & Kreps, David M., 1979. "Martingales and arbitrage in multiperiod securities markets," Journal of Economic Theory, Elsevier, vol. 20(3), pages 381-408, June.
- Black, Fischer, 1986. " Noise," Journal of Finance, American Finance Association, vol. 41(3), pages 529-43, July.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:3593. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()The email address of this maintainer does not seem to be valid anymore. Please ask to update the entry or send us the correct address
If references are entirely missing, you can add them using this form.