A THEORY OF INVESTOR EXPECTATIONS The Theory of Investor Expectations is totally consistent with Cootner's hypothesis that stock prices behave as a random walk within reflecting barriers." Cootner theorizes that market participants fall into one of two categories; first, a large group of non-professionals whose marginal research costs are so high that they "choose among stocks on the basis of information about future prospects (that is as) likely to be wrong as not.i'" and since new information flows to them in a non-systematic manner, their market activities work towards creating random price fluctuations around some mean value. Second, there exists a small group of market professionals (whose financial * Assistant Professor Economics and Finance, The Bernard M. Baruch College of The City University of New York. 1. A collection of various R.W. tests is found in Cootner . 2. For example, see, Granger . 3. See, Fama . 4. "For those willing to go beyond existing methodological constraints, there would seem to be a number of exciting possibilities for research on equity models . . . (for example, the) formation of investor expectations." Keenan [l0], p. 262. 5. Cootner . 6. Ibid., p. 233 in Cootner . The
The Journal of Finance – Wiley
Published: Mar 1, 1973
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