Stochastic Expectations: Good Mathematics, Bad Economics

4 Pages Posted: 12 Jul 2015

See all articles by Robert G. James

Robert G. James

California State University, Chico

Date Written: July 9, 2015

Abstract

An example is used to show that efficient market expectations are not the same as expectations in a stochastic process. An implication is that efficient market expectations need not have stochastic properties like orthogonality and variance bounds. Failure to recognize this fact has led to bad economic analysis.

Keywords: stochastic, efficient market, expectations, orthogonal, variance bounds

JEL Classification: G12, G13, G14

Suggested Citation

James, Robert G., Stochastic Expectations: Good Mathematics, Bad Economics (July 9, 2015). Available at SSRN: https://ssrn.com/abstract=2628943 or http://dx.doi.org/10.2139/ssrn.2628943

Robert G. James (Contact Author)

California State University, Chico ( email )

United States

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