Modelling Share Price Behaviour Across Time

Abstract

The Efficient Markets Hypothesis (EMH) is currently the dominant paradigm in Finance. This paper reviews the theoretical development of the hypothesis and the empirical testing which has occurred to determine its validity. Furthermore, empirical anomalies found by researchers in the Weak Form of the EMH are discussed and their theoretical interpretation critiqued. This paper also provides an overview of the Hamilton (1989) model and its extensions, one of the many econometric models developed in order to model the non-linearity in time-series such as stock prices.