NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Do We Really Know That Financial Markets Are Efficient?

Lawrence H. Summers

NBER Working Paper No. 994 (Also Reprint No. r0783)
Issued in September 1982
NBER Program(s):   EFG   PE

This paper examines the power of statistical tests commonly used to examine the efficiency of speculative markets. It shows that for markets with "long horizons" such as the stock markets, or the market for long term bonds, these tests have very low power. Market valuations can differ substantially and persistently from the rational expectation of the present value of cash flows without leaving statistically discernible traces in the pattern of ex-post returns. This observation also suggests that speculation is unlikely to insure rational valuations, since similar problems of identification plague both financial economists and would-be speculators.

download in pdf format
   (193 K)

email paper

This paper is available as PDF (193 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w0994

Published:

  • Summers, Lawrence H. "Do We Really Know that Financial Markets are Efficient?" Corporate Financial Policy, ed. J. Edwards. New Yotk, Cambridge University Press, 1986, pp. 13-24
  • Summers, Lawrence H. "Does the Stock Market Rationally Reflect Fundamental Values?" Journal of Finance. Vol. 41, No. 3, (July 1986), pp. 591-601.

Users who downloaded this paper also downloaded these:
French Crash Testing the Efficient Market Hypothesis
Ljungqvist and Richardson w9454 The cash flow, return and risk characteristics of private equity
Poterba and Summers w2343 Mean Reversion in Stock Prices: Evidence and Implications
Gorton, Huang, and Kang w14944 The Limitations of Stock Market Efficiency: Price Informativeness and CEO Turnover
Shiller w0565 The Use of Volatility Measures in Assessing Market Efficiency
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us