An exploration of Neo-Austrian theory applied to financial markets

We attempt to translate Neo-Austrian ideas about the workings of financial markets, as originally advanced by F. A. Hayek, into the standard probabilistic language of modern finance. We focus on an apparent paradox, namely the insistence of Neo-Austrians on order (i.e., stationarity) together with ever-reemerging inefficiencies. The paper's findings have implications beyond Neo-Austrian theory: They demonstrate how easy it is to reject market efficiency, but how much more difficult it is to discern the nature of the inefficiency. We illustrate our findings with price data from the U.S. Treasury bill market over the period 1962 to 1999. There is ample evidence that the price of a three-month Treasury bill is not a random walk, yet the sign of the average price change is erratic, so that inference about the nature of the inefficiency is unreliable.

Published in:
Journal of Finance, 56, 3, 1011-1027
Cited By (since 1996): 1
Export Date: 10 March 2008
Source: Scopus
Other identifiers:
Scopus: 2-s2.0-0039252055

 Record created 2008-03-12, last modified 2018-01-28

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