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Testing the Efficient Markets Theory on the Sydney Wool Futures Exchange

  • P. D. Praetz

Abstract

The efficient markets theory is most commonly associated with Sharpe [16], Lintner [13, 14], Fama [5] and Fama and Miller [6]. In simple terms it states that a market in which prices fully reflect all available information is regarded as efficient. To make this proposition testable, it is necessary to specify a model of price formation in terms of expected returns, which depend on the risk vis-a-vis other securities and are conditional on an information set (S). This can be formalized by
where E is the expectation operator, pt is the price of a security at time t, rt+1 is the one-period return and pt and rt are random variables. The information set, S is fully utilized in equilibrium expected returns and therefore in the price.

Keywords

Price Change Future Market Future Price Trading Rule Filter Test 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Palgrave Macmillan, a division of Macmillan Publishers Limited 1976

Authors and Affiliations

  • P. D. Praetz

There are no affiliations available

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