Beyond the efficient markets hypothesis: towards a new paradigm
Research output: Contribution to journal › Article
To go beyond the efficient markets hypothesis (EMH) we suppose that the stock market can be in one of three states: (1) a fundamental state, where share prices are determined largely as in the EMH; (2) a bubble or bull market state, where share prices are above their fundamental levels but are expected to continue to rise further, and (3) a bear market state, where shares are held exclusively by irrational agents and rational agents cannot exploit the overvaluation because of short-selling constraints. Also, heterogeneous rational expectations may help explain some features of stock market behaviour.
|Journal||Bulletin of Economic Research|
|Early online date||27 Jan 2020|
|Publication status||E-pub ahead of print - 27 Jan 2020|
- efficient markets hypothesis, bubbles, bear markets, heterogeneous expectations, G1