Predicting Stock Returns: Random Walk or Herding Behaviour?

Please cite the paper as:
Alessandro Zoino CFA, (2019), Predicting Stock Returns: Random Walk or Herding Behaviour?, World Economics Association (WEA) Conferences, No. 1 2019, Going Digital, 15th November to 16th December, 2019

Abstract

The analysis is based on Efficient Market Hypothesis and predictability of stock returns. Both concepts will be theoretically showed and demonstrated following the most known asset pricing theories and studying the bid/ask spreads. The 3 Efficient Market Hypotheses will be empirically tested through the Technical Analysis and the Fundamental Analysis. The aim of the model is to highlight the Efficient Market Hypothesis’ limits by instructing several tests related to the irrationality of investors, such as the analysis of the noise trading and the respectively effects on volatility, the empirical test of hedging, arbitrage and speculation concepts, the demonstration of the divergence between behavioural finance and expected returns, to conclude with the comparison between random walk and herding behaviour.

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1 comment

  • Bin Li says:

    The test is meaningful, but, even the theories tested herein are all “proved” or “falsified”, none of them is appropriate. How does stock market run? We need a comprehensive framework theory to clarify everything mentioned in the paper, which lead to an all-in-one economics-Algorithmic Economics. Economics have wandered for too long times, and should not go in old ways any more! Economists should not flatter the literature traditions any longer while reiterating “critics”, and should not suspect and reject new things while reiterating “innovation”!

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