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Q5. The efficient markets hypothesis can be written as Pt = Et Pt The model asserts that price (Pt) equals the expectation of ex-post value
Q5. The efficient markets hypothesis can be written as Pt = Et Pt The model asserts that price (Pt) equals the expectation of ex-post value (Pt). So if investors knew the future dividend then forecasting the future price would present no problem using ex-post values. It follows that Pt = Pt + Ut, where Ut is a forecast error. Discuss Rober Shiller's argument against the validity of the efficient markets hypothesis (10 marks). Q5. The efficient markets hypothesis can be written as Pt = Et Pt The model asserts that price (Pt) equals the expectation of ex-post value (Pt). So if investors knew the future dividend then forecasting the future price would present no problem using ex-post values. It follows that Pt = Pt + Ut, where Ut is a forecast error. Discuss Rober Shiller's argument against the validity of the efficient markets hypothesis (10 marks)
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