Do We Really Know That Financial Markets Are Efficient? / Lawrence H. Summers.

Format:

Book

Author/Creator:

Summers, Lawrence H.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w0994.

NBER working paper series no. w0994

Language:

English

Subjects (All):

Efficient market theory.

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1982.

Cambridge, Massachusetts : National Bureau of Economic Research, 1982.

Summary:

This paper examines the power of statistical tests commonly used to examine the efficiency of speculative markets. It shows that for markets with "long horizons" such as the stock markets, or the market for long term bonds, these tests have very low power. Market valuations can differ substantially and persistently from the rational expectation of the present value of cash flows without leaving statistically discernible traces in the pattern of ex-post returns. This observation also suggests that speculation is unlikely to insure rational valuations, since similar problems of identification plague both financial economists and would-be speculators.

Notes:

Print version record

September 1982.