ØPredictability: The ability to use the information available
at a time t
to forecast returns in the future.
Walk: Future returns are unpredictable
is an efficient market?
an efficient market, any information that may be used to predict returns is
already incorporated in the market price.
do we determine if markets are efficient?
to determine if there exist reliable information signals upon which we may
devise investment strategies that earn excess returns.
is at stake: why it matters that markets are efficient.
versus Passive management
markets are not efficient, active management may generate excess risk-adjusted
happy equilibrium: Passive management
cannot exist without active management.