Asset pricing in an inefficient market

Abstract

A number of recent studies suggest that the hypothesis of informationally efficient capital markets may be incorrect. This has led Shiller [19] to propose integrating modern financial theory with behavioural alternatives. Whether markets are informationally efficient or not, valid models of asset pricing must explain the observed time series behaviour of changes in speculative prices. It is shown that this requirement severely restricts the class of possible models of asset pricing in an informationally inefficient capital market. © 1990.