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8 votes

Does my research prove market inefficiency?

The efficient market hypothesis does not imply that there are no patterns! As Eugene Fama pointed out decades ago, any test of market efficiency is a joint test of market efficiency and an asset ...
Matthew Gunn's user avatar
6 votes

What is the exact relationship between the efficient-market and random-walk hypotheses?

They don't have anything to do with each other. Use the superscript $e$ to denote "anticipated value" in whatever way it is formed. Then the Efficient Market Hypothesis states $$X^e_{t+1,market} = ...
Alecos Papadopoulos's user avatar
5 votes
Accepted

What is the exact relationship between the efficient-market and random-walk hypotheses?

I just want to build on @Alecos's nice answer. I'll restate some of what he said and add a few other details. tl;dr They don't have anything to do with each other. The assumption of efficient ...
jmbejara's user avatar
  • 9,355
4 votes
Accepted

Is the convexity of production sets necessary for the welfare theorems?

Convexity of the production set is indeed not needed for the proof of the first welfare theorem but for the proof of the second welfare theorem. It is not a necessary condition though. It is ...
Michael Greinecker's user avatar
4 votes
Accepted

Does ownership determine efficiency in an economic system?

It's not unusual - in many real-world subjects - for there to be questions for which the right answer at one level of learning, under one teaching framework, is the wrong answer in a different context....
410 gone's user avatar
  • 8,168
4 votes

How do EMH proponents explain Black Monday (1987)?

Different proponents of efficient market hypothesis (EMH) will have different explanations because EMH does not say which fundamentals/variables should drive prices. EMH just states that prices ...
1muflon1's user avatar
  • 57.1k
3 votes

What is the exact relationship between the efficient-market and random-walk hypotheses?

As you say the RWH is an implication of the EMH, but the other way doesn't necessarily hold. Consider the problem of predicting the value, $X$, of the stock market at time $t+1$. The random walk ...
dsmithecon's user avatar
3 votes

Adam Smith and wage gap?

Yes, Smith addresses these issues in Book 1 Chapter 10 of The Wealth of Nations. Firstly, he notes that where two jobs are in almost every respect equivalent, we should expect them to pay the same ...
Ubiquitous's user avatar
3 votes

Efficiency in the market

These words are somewhat context dependent, but let's have a go at an answer. Definitions Market efficiency: Prices reflect all available information. In the EMH this is usually used in the context ...
Giskard's user avatar
  • 29.4k
3 votes
Accepted

Why does The Price of Anarchy have a lower bound of 1 (and a question about free market economics study)?

Any real-life command economy will likely do worse than a free market economy because of the massive information asymmetries and incentive problems arising between the government and individual firms, ...
VARulle's user avatar
  • 7,004
2 votes

What are the arguments against the rational expectations hypothesis?

One of the challenges to rational expectations is that it must be the case that the first moment exists for the variable of interest. This cannot be the case either for equity or equity-like ...
Dave Harris's user avatar
  • 2,006
2 votes

How long does it take for shocks to propagate through the price system / market?

This is likely only part of the story, but I found an interesting lecture by Milton Friedman that shows a graph of the quantity of money per unit of output (likely GDP) graphed alongside a normalized ...
B T's user avatar
  • 587
2 votes

Is market failure the same allocative inefficiency?

In this context 'market' usually means some allocation mechanism. For example free market, or a market where someone has monopoly power. Allocation of goods and resources can be done in other ways: e....
Giskard's user avatar
  • 29.4k
2 votes
Accepted

How does "Survival of the Fittest" result in Rosetta Stone's economic success?

I'm not very familiar with the history of the Rosetta Stone method, but as for your remark that "there are vastly inferior products on the market which are preferred to ones that are much better", ...
kazi0's user avatar
  • 36
2 votes

How can markets can be highly efficient, even if they make errors?

The theory of efficient markets is that no one can make rewards that are in excess of the level reflected by the risk they are taking, except by random chance. So if markets can make mistakes, but ...
410 gone's user avatar
  • 8,168
2 votes

Is there an economic theory that explains what happens when a market is saturated with a precious resource?

At the outset, discovery does not equate availability. Huge amounts of platinum (or the material at issue) might be discovered, but that does not necessarily mean that its extraction is feasible or ...
Iñaki Viggers's user avatar
2 votes

Doesn't the semi-strong form of the EMH conflict with expecting stock indices to increase in the long run?

I do not see the contradiction here: The stock indices generally increase in the long run, because of the growth of the global economy (or local economy in the case of one national index). This ...
Betelgeux's user avatar
  • 216
2 votes

Model of economic cycles consistent with efficient market hypothesis

The EMH applies to assets, not just stocks, and its implications are more relevant for investors who own part of the market - not the entire thing. This is important, because it's the difference ...
heh's user avatar
  • 1,806
2 votes

Efficient market hypothesis and different performances between countries

Efficient market hypothesis does not in itself predict that stock market returns will equalize among different stock markets so it should not really be part of the question (efficient market ...
1muflon1's user avatar
  • 57.1k
2 votes

Pareto efficiency of organ markets

There are economists who argue that market for organs would be efficient and would improve the allocation of cadavers saving lives. There also good arguments for them leading to Pareto improvements ...
1muflon1's user avatar
  • 57.1k
2 votes
Accepted

Evidence for or against the Efficient Market Hypothesis in financial markets and the currently dominant view

The abstract of EVIDENCE FOR AND AGAINST THE VALIDITY OF EFFICIENT MARKET HYPOTHESIS by Milјan Leković: The concept of an efficient financial market, in literature known as efficient market ...
Giskard's user avatar
  • 29.4k
2 votes

How to weakly predict T-bill rates?

Yes you can forecast them in a various different ways. I don't think it is possible to make full literature review in a single SE post, so I will just give some examples. You can simply use random ...
1muflon1's user avatar
  • 57.1k
2 votes
Accepted

How to weakly predict T-bill rates?

If I understand your question correctly, you would like to know what future 1y yields will be like. These are called forward rates. Because of the nature of the question and the fact that there are ...
BrsG's user avatar
  • 1,652
2 votes

What is the difference between economic rent and economic profit?

I do not think you have the correct definition of rent there. Or to be more clear maybe that is the definition used in some subfields of economics as language can sometimes differ between subfields. ...
1muflon1's user avatar
  • 57.1k
2 votes

Why does The Price of Anarchy have a lower bound of 1 (and a question about free market economics study)?

You seem to be falling for a fallacy of equivocation here. Centralized solution to the PoA model is not the same as having command economy. For example, some classic PoA models are about managing ...
1muflon1's user avatar
  • 57.1k
2 votes
Accepted

Why do accumulating ETFs grow linearly instead of exponentially?

You do not need dividend reinvestment to have exponential growth. Anything that grows at a certain rate (say 5% each year) over time will grow exponentially. However, what you look at is an index the ...
AKdemy's user avatar
  • 4,121
1 vote

Why do different product-markets record different rates of return if the assumption of competitive markets hold?

Your figures reports ex-post (say end of year) returns on capital investments. Ex-ante (beginning of the year, or before the investment) these returns are random and unknown, and there is a trade-off ...
Bertrand's user avatar
  • 3,371

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