Skip to main content
Disciplines
Automotive Business IT + Informatics Construction + Real Estate Electrical Engineering + Electronics Energy + Sustainability Insurance + Risk Finance + Banking Management + Leadership Marketing + Sales Mechanical Engineering + Materials
Events
DE
EN
Books
Journals
Topic Page
Marketing
Start single access now
Access for companies
EXTENDED SEARCH
Log in
Top
Published in:
Introduction Read chapter Read first chapter

2017 | OriginalPaper | Chapter

4. Market Efficiency and the Standard Asset Pricing Models Used to Test Market Efficiency

Authors : Ted Lindblom, Taylan Mavruk, Stefan Sjögren

Published in: Proximity Bias in Investors’ Portfolio Choice

Publisher: Springer International Publishing

Log in

Activate our intelligent search to find suitable subject content or patents.

search-config
loading …

Abstract

This chapter reviews the efficient market hypothesis (EMH), proposed by Fama in 1970s. We discuss and exemplify the applications of the hypothesis that the equities are perfectly priced according to their characteristics, meaning that the market prices reflect the information made available to investors at any given time. The main focus of the chapter is to explore the relevance of the efficient market theory to the proximity-biased investors. We also review the standard asset pricing models used to test EMH.

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 102.000 Bücher
  • über 537 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe
  • Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 340 Zeitschriften

aus folgenden Fachgebieten:

  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Versicherung + Risiko




Jetzt Wissensvorsprung sichern!

inform now
previous chapter Decision-Making—Rational, Bounded, or Behavioral
next chapter The Financial Behavior of Individual Investors
Literature
Andreaou, E., N. Pittis, and A. Spanos. 2001. On Modelleing Sepculative Prices: The Empirical Literature. Journal of Economic Surveys 15: 187–220.CrossRef
Ang, A., W.N. Goetzmann, and S. Schaefer. 2011. Review of the Efficient Market Theory and Evidence: Implications for Active Investment Management. Foundations and Trends in Finance 5: 157–242.CrossRef
Arrow, K. J., 1951, Social Choice and Individual Values. New York: Wiley, 1951; republished in an extended form, 1963.
Arrow, K.J., 1953. Le role de valeurs boursieres pour la repartiotion la meilleure des risques, Econometrie, 41-48. Trans. as. The Role of Securities in the Optimal Allocation of Risk-bearing. Review of Economic Studies 31 (1964): 91–96.
Arrow, K.J., and G. Debreu. 1954. Existence of an Equilibrium for a Competitive Economy. Econometrica 22: 265–290.CrossRef
Barber, B.M., and J.D. Lyon. 1997. Detecting Long-Run Abnormal Stock Returns: The Empirical Power and Specification of Test Statistics. Journal of Financial Economics 43: 341–372.CrossRef
Berk, J., and P. DeMarzo. 2016. Corporate Finance, 4th ed. USA: Pearson.
Black, F. 1993. Beta and Return. Journal of Portfolio Management 20: 8–18.CrossRef
Campbell, J.Y., A.W. Lo, and A.C. MacKinlay. 1997. The Econometrics of Financial Markets. USA: Princeton University Press.
Carhart, M.M. 1997. On Persistence in Mutual Fund Performance. Journal of Finance 52: 57–82.CrossRef
Carlsson, E. 2016. Lecture Notes on Incomplete Financial Markets, the School of Economics, Business, and Law at the University of Gothenburg, Sweden.
Clarke, J., Jandik, T., and Mandelker, G. 2001. The Efficient Markets Hypothesis. In Expert Financial Planning: Investment Strategies from Industry Leaders, ed. Robert C. ARFFA, pp. 126–141. New York: Wiley, (Chapter 9).
Cochrane, J.H., and Culp, C. 2003. Equilibrium Asset Pricing and Discount Factors: Overview and Implications for Derivatives Valuation and Risk Management. In Modern Risk Management: A History, 57–92. London: Risk Books.
Coval, J.D., and A.V. Thakor. 2005. Financial Intermediation as a Beliefs-Bridge Between Optimists and Pessimists. Journal of Financial Economics 75: 535–569.CrossRef
Cox, J., J.E. Ingersoll, and S. Ross. 1985. An Intertemporal General Equilibrium Model of Asset Prices,”. Econometrica 53: 363–384.CrossRef
Debreu, G. 1952. A Social Equilibrium Existence Theorem. Proceedings of the National Academy of Sciences of the USA 38: 886–893.CrossRef
Debreu, G. 1959. Theory of Value. New York: Wiley.
Diamond, P.A. 1967. The Role of a Stock Market in a General Equilibrium Model with Technological Uncertainty. American Economic Review 57: 759–776.
Eckbo, E. 2008. Handbook of Corporate Finance: Empirical Corporate Finance, vol. 2. Elsevier/North-Holland Handbook of Finance Series. ISBN-13: 978-0-444-53090-5.
Fama, E.F. 1970. Efficient Capital Markets: a Review of Theory and Empirical Work. Journal of Finance 25: 383–417.CrossRef
Fama, E.F. 1998. Market Efficiency, Long-Term Returns, and Behavioral Finance. Journal of Financial Economics 49: 283–306.CrossRef
Fama, E.F., and K.R. French. 1992. The Cross-Section of Expected Stock Returns. Journal of Finance 47: 427–465.CrossRef
Fama, E.F., and K.R. French. 1993. Common Risk Factors in the Returns on Stocks and Bonds. Journal of Financial Economics 33: 3–56.CrossRef
Fama, E.F., and K.R. French. 2012. Size, Value, and Momentum in International Stock Returns. Journal of Financial Economics 105: 457–472.CrossRef
Geanakoplos, J., M. Magill, M. Quinzii, and J. Dreze. 1990. Generic Inefficiency of Stock Market Equilibrium When Markets are Incomplete. Journal of Mathematical Economics 19: 113–151.CrossRef
Grossman, S., and J. Stiglitz. 1980. On the Impossibility of Informationally Efficient Markets. American Economic Review 70: 393–408.
Ingersoll, J.E. 1984. Some Results in the Theory of Arbitrage Pricing. Journal of Finance 39: 1021–1039.CrossRef
Jaffe, J.F. 1974. Special Information and Insider Trading. Journal of Business 47: 410–428.CrossRef
Jegadeesh, N., and S. Titman. 1993. Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency. Journal of Finance 48: 65–91.CrossRef
Kothari, S., and J. Warner. 1997. Measuring Long-Horizon Security Price Performance. Journal of Financial Economics 43: 301–339.CrossRef
Kothari, S., J. Lewellen, and J. Warner. 2006. Stock Returns, Aggregate Earnings Surprises, and Behavioral Finance. Journal of Financial Economics 79: 537–568.CrossRef
Lo, A.W., and C. MacKinlay. 1999. A Non-Random Walk Down Wall Street. Princeton, NJ: Princeton University Press, USA.
Lo, A. W. 2007. Efficient Markets Hypothesis, To appear in The New Palgrave: A Dictionary of Economics, 2nd edn. eds. L. Blume and S. Durlauf. Palgrave McMillan, New York, USA.
Lucas, R.E. 1978. Asset Prices in an Exchange economy. Econometrica 46: 1429–1446.CrossRef
Lyon, J., B. Barber, and C. Tsai. 1999. Improved Methods of Tests of Long-horizon Abnormal Stock Returns. Journal of Finance 54: 165–201.CrossRef
Magill, M., and M. Quinzii. 1996. Theory of Incomplete Markets. Boston, USA: MIT Press.
Malkiel, B.G. 2003. The Efficient Market Hypothesis and Its Critics. Journal of Economic Perspectives 17: 59–82.CrossRef
Mavruk, T., and Seyhun, H.N. 2016. Do SEC’s 10b5-1 Safe Harbor Rules Need to Be Rewritten? Columbia Business Law Review, 133–183.
McKenzie, L.W. 1954. On Equilibrium in Graham’s Model of World Trade and Other Competitive Systems. Econometrica 22: 147–161.CrossRef
Merton, R. C., and Z. Bodie. 2005. The Design of Financial Systems: Towards a Synthesis of Function and Structure. Journal of Investment Management 3: 1–23.
McKenzie, L.W. 1955. Competitive Equilibrium with Dependent Consumer Preferences, Second Symposium on Linear Programming, 277–294. Washington: National Bureau of Standards and Department of the Air Force.
McKenzie, L.W. 1959. On the Existence of a General Equilibrium for a Competitive Market. Econometrica 28: 54–71.CrossRef
Merton, R.C. 1971. Optimum Consumption and Portfolio Rules in a Continuous-Time Model. Journal of Economic Theory 3: 373–413.CrossRef
Modigliani, F., and M. Miller. 1958. The Cost of Capital. Corporation Finance and the Theory of Investment, American Economic Review 48: 261–297.
Odean, T. 1999. Do Investors Trade too Much? American Economic Review 89: 1279–1298.CrossRef
Petersen, M.A. 2009. Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches. Review of Financial Studies 22: 435–480.CrossRef
Radner, R. 1972. Existence of Equilibrium of Plans, Prices and Price Expectations in a Sequence of Markets. Econometrica 40: 289–303.CrossRef
Roll, R. 1977. A Critique of the Asset Pricing Theory’s Tests Part I: On Past and Potential Testability of the Theory. Journal of Financial Economics 4: 129–176.CrossRef
Ross, S. 1976. The Arbitrage Theory of Capital Asset Pricing. Journal of Economic Theory 13: 341–360.CrossRef
Rozeff, M., and M. Zaman. 1988. Market Efficiency and Insider Trading: New Evidence. Journal of Business 61: 25–44.CrossRef
Samuelson, P.A. 1965. Proof that Properly Anticipated Prices Fluctuate Randomly. Industrial Management Review 6: 41–49.
Sewell, M. 2011. History of the Efficient Market Hypothesis. Research Note RN/11/04. London: University College London.
Seyhun, H.N. 1986. Insiders’ Profits. Costs of Trading, and Market Efficiency, Journal of Financial Economics 16: 189–212.
Seyhun, H.N. 1998. Investment Intelligence From Insider Trading. Cambridge: MIT Press, USA.
Shiller, R.J. 2000. Irrational Exuberance. USA: Princeton University Press.
Shumway, T., 2013. Lecture notes on The Asset Pricing Theory. USA: University of Michigan.
Williamson, O.E. 1985. The Economic Institutions of Capitalism. New-York, USA: Free Press.
Stiglitz, J.E. 1982. The Inefficiency of Stock-market Equilibrium. Review of Economic Studies 49: 241–261.CrossRef
Metadata
Title
Market Efficiency and the Standard Asset Pricing Models Used to Test Market Efficiency
Authors
Ted Lindblom
Taylan Mavruk
Stefan Sjögren
Copyright Year
2017
Book
Proximity Bias in Investors’ Portfolio Choice

Print ISBN: 978-3-319-54761-9

Electronic ISBN: 978-3-319-54762-6

Copyright Year: 2017

DOI
https://doi.org/10.1007/978-3-319-54762-6_4