The random walk versus unbiased efficiency: can we separate the wheat from the chaff?

Moosa, Imad A.

doi:10.1080/01603477.2015.1078734

Cited by 4 publications

(2 citation statements)

References 40 publications

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“…Speculation is mostly practised in the form of technical trading of so-called chartists on forex markets. All this is fairly well elaborated in exchange-rate research based on behavioural finance and Keynesian theories of expectations (for a critique of IRP, see also Harvey 2004;Moosa 2015;Priewe 2015;2016: 31ff).…”

Section: Criticismsmentioning

confidence: 92%

Review of exchange-rate theories in four leading economics textbooks

Priewe

2017

European Journal of Economics and Economic Policies: Intervention

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In this paper, the parts of four leading economics textbooks that deal with exchange-rate theories are reviewed. The books are by Krugman/Obstfeld/Melitz, Blanchard/Johnson, Mankiw/Taylor and Samuelson/Nordhaus. The theoretical background for this exercise is the fact that exchange-rate theory is one of the weakest parts in 'mainstream economics', meaning the neoclassical and the New Keynesian stream of thought. It is now widely accepted that exchange-rate forecasts are no better than those arising from a random walk in the short and medium run. For the long run, most authors stick to the old purchasing-power-parity theory whose empirical validation is just as weak. Nonetheless the textbooks reviewed here only present exchange-rate theories that have little empirical support. Yet they differ considerably, even though they remain within the leading theoretical paradigm.

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Section: Criticismsmentioning

confidence: 92%

Review of exchange-rate theories in four leading economics textbooks

Priewe

2017

European Journal of Economics and Economic Policies: Intervention

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“…The dynamic nature of security prices which changes all the time is considered as the main factor affecting the unpredictable pattern. Proponents of the random walk theory argue that, this dynamic nature is as a result of unbiased expectations made by investors and market participants about future expectations (Moosa, 2015). That is to say, stock prices are unbiased estimators of market value because market prices change with almost the same proportion as new information.…”

Section: Introductionmentioning

confidence: 99%

Random walk and modelling stock return

Enow¹

2023

IJRBS

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The debate on whether stock prices follow a random walk continues, becoming the foundation of modern portfolio theory. Supporters of the random walk theory still believe that modeling stock prices is a wasteful exercise. However, evidence from momentum pricing strategy and price reversals suggests otherwise. This study aimed to empirically explore the random walk theory in five international stock markets before and during the Covid-19 pandemic from June 30, 2017, to June 30, 2019, and January 1, 2020, to December 31, 2021. A multivariate runs test and a generalised distribution function was applied to investigate the theory. The results revealed no significant difference between the observed S-statistics runs and the expected ones, concluding that it is not common to observe random walks in financial markets consistently. Hence price changes in financial markets are significantly affected not only based on new information and investors’ expectations but also by irrationalities that exist among market participants. These irrationalities can be modeled using a generalised distribution function to produce price patterns.

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Why does uncovered interest parity fail empirically?

Aziz

2024

International Review of Financial Analysis

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The random walk versus unbiased efficiency: can we separate the wheat from the chaff?

Cited by 4 publications

References 40 publications

Review of exchange-rate theories in four leading economics textbooks

Review of exchange-rate theories in four leading economics textbooks

Random walk and modelling stock return

Why does uncovered interest parity fail empirically?

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