Rational Asset Price Movements Without News

Technical analysis involves the prediction of asset price movements from inductive analysis of past movements. We establish a number of stylized facts, including that technical analysis is widespread in the foreign exchange market and that it may be profitable. We then analyze four arguments that have been put forward to explain this: that the market may not be fully rational; that technical analysis may exploit the influence of official interventions; that it may be an efficient form of information processing; and that it may inform on nonfundamental influences. While each may have some validity, the latter is the most plausible. As for the foreign exchange, it is almost as romantic as young love, and quite as resistant to formulae.

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Restrictions on Asset-Price Movements Under Rational Expectations: Theory and Evidence

SSRN Electronic Journal ◽

10.2139/ssrn.3436384 ◽

2018 ◽

Author(s):

Ned Augenblick ◽

Eben Lazarus

Keyword(s):

Rational Expectations ◽

Asset Price ◽

Price Movements

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Stabilizing non-fundamental asset price movements under discretion and limited information

Journal of Monetary Economics ◽

10.1016/j.jmoneco.2005.03.005 ◽

2005 ◽

Vol 52 (4) ◽

pp. 727-747 ◽

Cited By ~ 42

Author(s):

Bill Dupor

Keyword(s):

Asset Price ◽

Limited Information ◽

Price Movements

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An Empirical Study on Efficient Market Hypothesis with reference to FMCG Sector

GIS Business ◽

10.26643/gis.v15i1.17895 ◽

2020 ◽

Vol 15 (1) ◽

pp. 109-126

Author(s):

Nitin Tanted ◽

Prashant Mistry

Keyword(s):

Stock Prices ◽

Stock Price ◽

Abnormal Returns ◽

Weak Form ◽

Efficient Market Hypothesis ◽

Controversial Issues ◽

Efficient Market ◽

Price Movements ◽

Run Test ◽

Stock Price Movements

One of the highly controversial issues in the area of finance is “Efficient Market Hypothesis”. Efficient Market Hypothesis states that, “In an efficient market, all available price information is reflected in the stock prices and it is not possible to generate abnormal returns compared to other investors.” A lot of studies conducted previouslyto test the Efficient Market Hypothesis, confirmed the theory until recent years, when some academicians found it to be non-applicable in financial markets. According to them, it is possible to forecast the stock price movements using Technical Analysis. The results of various studies have been inconclusive and indefinite about the issue. This study attempted to test the efficiency of FMCG Sector stocks in India in its weak form. For the study, closing prices of top 10 stocks from Nifty FMCG index has been taken for the 5-year period ranging from 1st October 2014 to 30th September 2019. Wald-Wolfowitz Run test has been used to test the haphazard movements in the stock price movements. The results indicated that FMCG sector stocks does support the Efficient Market Hypothesis and exhibit efficiency in its weak form. Hence, it is not possible to accurately predict the price movements of these stocks.

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The Micro and Macro of Managerial Beliefs

10.31235/osf.io/fctsb ◽

2020 ◽

Cited By ~ 1

Author(s):

Jose Maria Barrero

Keyword(s):

Rational Expectations ◽

Asset Price ◽

Heterogeneous Firms ◽

Adjustment Costs ◽

Consumer Welfare ◽

Sales Growth ◽

Firm Level ◽

Managerial Decisions ◽

Managerial Beliefs ◽

Growth Volatility

This paper studies how biases in managerial beliefs affect managerial decisions, firm performance, and the macroeconomy. Using a new survey of US managers I establish three facts. (1) Managers are not over-optimistic: sales growth forecasts on average do not exceed realizations. (2) Managers are overprecise (overconfident): they underestimate future sales growth volatility. (3) Managers overextrapolate: their forecasts are too optimistic after positive shocks and too pessimistic after negative shocks. To quantify the implications of these facts, I estimate a dynamic general equilibrium model in which managers of heterogeneous firms use a subjective beliefs process to make forward-looking hiring decisions. Overprecision and overextrapolation lead managers to overreact to firm-level shocks and overspend on adjustment costs, destroying 2.1 percent of the typical firm’s value. Pervasive overreaction leads to excess volatility and reallocation, lowering consumer welfare by 0.5 to 2.3 percent relative to the rational expectations equilibrium. These findings suggest overreaction may amplify asset-price and business cycle fluctuations.

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