We cannot test for market efficiency. Why you ask?
1) One needs a measuring stick against which abnormal returns can be compared;
2) We do not know if the market is efficient IF we do NOT know that a model such as the CAPM, APT or the Black-Scholes model correctly stipulates the required rate of return. (Again, we have no measuring stick.)
Therefore, we must conclude either the asset pricing model is incorrect or the market is inefficient, but we have no way of knowing which is true.
Subscribe to:
Post Comments (Atom)
Great article with excellent idea!Thank you for such a valuable article. I really appreciate for this great information.. click here for more
ReplyDelete