Martingale-Like Behavior of Prices and Interest Rates

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Martingale-Like Behavior of Prices and Interest Rates

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Published Date

1984-10

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Center for Economic Research, Department of Economics, University of Minnesota

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Working Paper

Abstract

Asset prices are shown to be "instantaneously unpredictable" as a consequence of arbitrage and weak regularity conditions. Instantaneously unpredictable processes are defined as those for which the coefficient of determination in a regression of changes in the process on any function of information available at the start of the forecast period tends to zero as the length of the forecast period tends to zero. The results obtained are important for the interpretation of tests of the efficient markets hypothesis.

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Discussion Paper
205

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Previously Published Citation

Sims, C.A., (1984), "Martingale-Like Behavior of Prices and Interest Rates", Discussion Paper No. 205, Center for Economic Research, Department of Economics, University of Minnesota.

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Sims, Christopher A.. (1984). Martingale-Like Behavior of Prices and Interest Rates. Retrieved from the University Digital Conservancy, https://hdl.handle.net/11299/55388.

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