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Efficient market hypothesis in the modern era
Vlček, Šimon ; Krištoufek, Ladislav (advisor) ; Korbel, Václav (referee)
Efficient Market Hypothesis (EMH) has been the central assumption of financial modelling in the previous decades. At its core, it is a statement about the efficient incorporation of available information in the prices of assets, rendering each price a 'true' representation of the asset's intrinsic value. The notion of informationally efficient financial markets has been, since its formulation, entrenched in the very core of our understanding of how asset pricing works, yet, with ever so increasing frequency, when subjected to empirical scrutiny, it fails to prove its explanatory and predictive prowess. New academic strands emerged have emerged as a result, attempting to explain those empirical short-comings, with rather mixed results. The new models and theories often either explain a singular anomaly, rather than pro- viding a generalized and consistent theoretical framework, or are exclusive with the general state of financial markets, which tends to be efficient and rational. This thesis shall explore the relationship of information and financial mar- kets, taking into account developments that have occurred since the inception of the EMH. Subsequently it will present a new theoretical model for asset pric- ing and ipso facto the efficiency of financial markets, based on meta-analysis of information, along...
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Efficiency of Prague Stock Exchange Market using Markov Chains
Kratochvíl, Jonáš ; Červinka, Michal (advisor) ; Hausenblas, Václav (referee)
The main intention of this thesis is to analyze the weak form efficiency of Prague Stock Exchange. We conduct our empirical analysis on daily, weekly and monthly return data of the PX index collected in time period 1994-2017. The theory of Markov chains is employed to decide whether the index returns follow a random walk, the evidence of weak form efficiency. Bayesian Informa- tion Criterion is used to establish the optimal order of the Markov chain, which is in turn tested against the order 0 by Likelihood ratio criterion. The model assumptions of time homogeneity, irreducibility and aperiodicity of transition probability matrix are validated. We reject the weak form efficiency for daily index returns and establish its optimal Markov chain order to be 1. The weak form efficiency is not rejected for weekly and monthly index returns so is the as- sumption of time homogeneity for the whole time period 1994-2017. We propose further analysis of daily returns for time period 2006-2017, which exploits the fact of the weak form inefficiency. Discussion of results and related literature is provided as well as the presentation of all contemplated methods. 1
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Efficient market hypothesis in the modern era
Vlček, Šimon ; Krištoufek, Ladislav (advisor) ; Korbel, Václav (referee)
Efficient Market Hypothesis (EMH) has been the central assumption of financial modelling in the previous decades. At its core, it is a statement about the efficient incorporation of available information in the prices of assets, rendering each price a 'true' representation of the asset's intrinsic value. The notion of informationally efficient financial markets has been, since its formulation, entrenched in the very core of our understanding of how asset pricing works, yet, with ever so increasing frequency, when subjected to empirical scrutiny, it fails to prove its explanatory and predictive prowess. New academic strands emerged have emerged as a result, attempting to explain those empirical short-comings, with rather mixed results. The new models and theories often either explain a singular anomaly, rather than pro- viding a generalized and consistent theoretical framework, or are exclusive with the general state of financial markets, which tends to be efficient and rational. This thesis shall explore the relationship of information and financial mar- kets, taking into account developments that have occurred since the inception of the EMH. Subsequently it will present a new theoretical model for asset pric- ing and ipso facto the efficiency of financial markets, based on meta-analysis of information, along...
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