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Volume 57, Issue 5 -6

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Information Efficiency of the Capital Market: a Stochastic Calculus Approach Evidence from the Czech Republic

Hackl, Zbyněk; Pošta, Vít

Year: 2007   Volume: 57   Issue: 5 -6   Pages: 235-254

Abstract: This paper deals with an important characteristic of the capital market: information efficiency. With the use of geometric Brownian motion, the authors run several projections of stock prices based on varying amount of historic information and compare these projections with the real behavior of the stock prices, examining for predictability. This enables to verify the condition of the weak-efficiency hypothesis in the form of a Markov process. The authors conduct the empirical part of their analysis in the environment of the Czech capital market, thus providing additional information on the development of transition economies.

JEL classification: C02, C15, G14

Keywords: Monte Carlo, stochastic calculus, weak-form information efficiency

RePEc: http://ideas.repec.org/a/fau/fauart/v57y2007i5-6p235-254.html

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