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Market Efficiency and Rational Expectations

Author

Listed:
  • Kaie Kerem

    (Department of Economics at Tallinn University of Technology)

  • Enn Listra

    (Department of Economics at Tallinn University of Technology)

  • Katrin Rahu

    (Department of Economics at Tallinn University of Technology)

Abstract

The paper studies the financial market efficiency based on the data from Tallinn Stock Exchange, the rationality of expectations that is treated as financial rationality and the time series properties of inflation time series to get the forecasting model. The hypotheses to be tested are of interest to both macroeconomists and policy-makers. Two time periods can be distinguished for the modelling purposes in the case of CPI. During the first period the concept of rational expectations is clearly non-usable in macroeconomic models of that period. It can probably be used during the second period. Three time periods can be distinguished in market data. Clear improvement of market efficiency has been found in Estonian capital market. The study relies both on the economic theory and on time series analysis. The authors use banking statistics and macroeconomic data on Estonia.

Suggested Citation

  • Kaie Kerem & Enn Listra & Katrin Rahu, 2004. "Market Efficiency and Rational Expectations," Working Papers 112, Tallinn School of Economics and Business Administration, Tallinn University of Technology.
    • Handle: RePEc:ttu:wpaper:112
    Note: This research was conducted with support from the Estonian Science Foundation (Research Grants 5146 and 5185).
    as

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    File URL: http://deepthought.ttu.ee/majandus/tekstid/TUTWPE_04_112.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    market efficiency; rational expectations; inflation; modelling;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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