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Behavioral Economics: EMH Definitions
Behavioral Economics: EMH Definitions
Behavioral Economics: EMH Definitions
EMH Definitions
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January
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Semi-Strong
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Market is efficient.
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A Martingale Process
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Imagine a process X(t) over time
For any t, E[X(t)] is the expected value of H
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X at time
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Either:
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Xi*P(Xi) for i: 1 to n if only discrete
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values of X
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X*f(X) dX where f(X) is a probability
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density function
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Expected value is an average (weighted) I
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A Martingale Process is defined as a
E[X(t)] = X(s) for all t, s
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process with the following property:
where s > t
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Coin flip
X(t) where X(0) = 0
X(t+1) = X(t) plus F(t)
Where F(t) = +1 if coin flip is heads
Where F(t) = -1 if coin flip is tails
If p(H) = P(T) =
Then E[X(t+1)] = X(t)
And E[X(s)] = X(t) where s> t
Hence X(t) is a Martingale Process
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