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- Title
Revealing Weak-Form Inefficiency in a Market for State Contingent Claims: The Importance of Market Ecology, Modelling Procedures and Investment Strategies.
- Authors
SUNG, M.; JOHNSON, J. E. V.
- Abstract
This paper examines the degree to which current prices discount historical prices in a market for state contingent claims. Conditional logit analysis is employed to predict winning probabilities, based on market prices in a betting market. These are used, together with various wagering strategies to yield substantial abnormal returns. Consequently, in contrast to the existing literature, the results suggest that the market is not weak form efficient. The disparity with previous efficiency studies highlights the importance of considering market ecology and of adopting an appropriate modelling procedure and investment strategy to fully exploit information contained in market prices.
- Subjects
UNITED Kingdom; PRICES; PROBABILITY theory; MARKET prices; INVESTMENTS; FINANCIAL markets
- Publication
Economica, 2010, Vol 77, Issue 305, p128
- ISSN
0013-0427
- Publication type
Article
- DOI
10.1111/j.1468-0335.2008.00716.x