The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Stock Price Predictability

  • Wayne E. Ferson
Reference work entry
DOI: https://doi.org/10.1057/978-1-349-95189-5_2276

Abstract

The question of predictability in stock returns has important and broad economic implications. Predictability relates directly to the efficiency of the capital markets in allocating resources to their highest valued uses. But the interpretation of predictability, and the evidence for its very existence, remain controversial. This article provides a review of the arguments and evidence for stock return predictability. The evidence for weak-form predictability, based on the information in past stock prices, is more fragile and less compelling than the evidence for semi-strong form predictability, based on publicly available information more generally.

Keywords

Arbitrage ARMA processes Asset pricing models Behavioral finance Capital markets Data mining Dividend–price ratio Efficient markets hypothesis Financial econometrics Finite sample bias Frictions Market inefficiency Martingales Momentum Multiple comparisons Predictability Regime shifts Selection bias Semi-strong form predictability Serial dependence Spurious regressions Standard error estimation Statistical econometrics Stock price predictability Stock market returns Strong-form predictability Structural breaks Trading strategies Variance ratio Weak-form predictability 
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Notes

Acknowledgments

The author acknowledges financial support from the Collins Chair in Finance at Boston College and the helpful comments of Steven Durlauf and Timothy Simin.

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Wayne E. Ferson
    • 1
  1. 1.