Abstract:A widespread misbelief asserts that an efficient market would arbitrage out any cyclical or otherwise partially-predictable, non-random-walk pattern on the observed market prices time series. Hence, when such patterns are observed, they are often attributed to either irrational behavior or market inefficiency. Yet, strictly speaking, the efficient markets hypothesis only rules such patterns out of the expected (i.e. mean) path, whereas, if the probability diffusion process is asymmetric (as in most economic an… Show more
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