Predictability: The ability to use the information available at a time t to forecast returns in the future.
finance
Description
Introduction
ØPredictability: The ability to use the information available
at a time t
to forecast returns in the future.
ØRandom
Walk: Future returns are unpredictable
Ø
ØWhat
is an efficient market?
ØIn
an efficient market, any information that may be used to predict returns is
already incorporated in the market price.
Ø
ØHow
do we determine if markets are efficient?
ØNeed
to determine if there exist reliable information signals upon which we may
devise investment strategies that earn excess returns.
ØWhat
is at stake: why it matters that markets are efficient.
ØActive
versus Passive management
ØIf
markets are not efficient, active management may generate excess risk-adjusted
returns.
ØThe
happy equilibrium: Passive management
cannot exist without active management.
Why not?
Ø
Ø
