TransWikia.com

Fama: Efficient Capital Markets: A Review of Theory and Empirical Work - are martingales incorrect?

Quantitative Finance Asked by s5s on October 27, 2021

In his paper, Eugene Fama gives the definition of a "fair game" as given below. I disagree. AFAIK, a martingale has the following property: $E[X_{t+tau} | X_t] = X_t$. What am I missing?

enter image description here

Footnote 9 says:

enter image description here
enter image description here

And again, in a previous statement:

enter image description here

One Answer

The way I understand it is:

In equation 2 $x_{j, t + 1}$ is defined as the change in of $p_j$ over the period $t$ to $t + 1$. The formula says that the expectation of the change is zero which is the same as saying that the expectation of the original variable at $t+1$ is equal to its current value.

Answered by Bob Jansen on October 27, 2021

Add your own answers!

Ask a Question

Get help from others!

© 2024 TransWikia.com. All rights reserved. Sites we Love: PCI Database, UKBizDB, Menu Kuliner, Sharing RPP