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The Efficient Market Hypothesis: A Survey

Author

Listed:
  • Meredith Beechey

    (Reserve Bank of Australia)

  • David Gruen

    (Reserve Bank of Australia)

  • James Vickery

    (Reserve Bank of Australia)

Abstract

The efficient market hypothesis states that asset prices in financial markets should reflect all available information; as a consequence, prices should always be consistent with ‘fundamentals’. In this paper, we discuss the main ideas behind the efficient market hypothesis, and provide a guide as to which of its predictions seem to be borne out by empirical evidence, and which do not. In examining the empirical evidence, we concentrate on the stock and foreign exchange markets. The efficient market hypothesis is almost certainly the right place to start when thinking about asset price formation. The evidence suggests, however, that it cannot explain some important and worrying features of asset market behaviour. Most importantly for the wider goal of efficient resource allocation, financial market prices appear at times to be subject to substantial misalignments, which can persist for extended periods of time.

Suggested Citation

  • Meredith Beechey & David Gruen & James Vickery, 2000. "The Efficient Market Hypothesis: A Survey," RBA Research Discussion Papers rdp2000-01, Reserve Bank of Australia.
  • Handle: RePEc:rba:rbardp:rdp2000-01
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    File URL: https://www.rba.gov.au/publications/rdp/2000/pdf/rdp2000-01.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    efficient market; financial market;

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. 効率的市場仮説 in Wikipedia Japanese
    2. Principles of Finance/Section 1/Chapter 7/Efficient-Market Hypothesis in Wikibooks English

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