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Information Efficiency of the Capital Market: a Stochastic Calculus Approach Evidence from the Czech Republic (in English)

Author

Listed:
  • Vít Pošta

    (University of Economics, Prague)

  • Zbynìk Hackl

    (University of Economics, Prague)

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.

Suggested Citation

  • Vít Pošta & Zbynìk Hackl, 2007. "Information Efficiency of the Capital Market: a Stochastic Calculus Approach Evidence from the Czech Republic (in English)," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(5-6), pages 235-254, August.
    • Handle: RePEc:fau:fauart:v:57:y:2007:i:5-6:p:235-254
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    Citations

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    Cited by:

    1. Vít Pošta, 2009. "The Role of fundamentals factors of empirical analysis of the Prague stock exchange," Ekonomika a Management, Prague University of Economics and Business, vol. 2009(3).
    2. Victor Dragotă & Elena Ţilică, 2014. "Market efficiency of the Post Communist East European stock markets," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 22(2), pages 307-337, June.
    3. Ferreira, Paulo, 2018. "Long-range dependencies of Eastern European stock markets: A dynamic detrended analysis," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 505(C), pages 454-470.
    4. Vít Pošta, 2008. "Estimating the Dynamics of Weak Efficiency on the Prague Stock Exchange Using the Kalman Filter," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 58(05-06), pages 248-260, August.

    More about this item

    Keywords

    Monte Carlo; stochastic calculus; weak-form information efficiency;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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