An Assessment of Forecasting Accuracy and Market Efficiency in the International

For 20 years, a substantial research effort has been directed toward developing and testing the efficient market hypothesis. Stated simply, an efficient market is one "in which prices always 'fully reflect ' available information " (Fama, 1970). Investors collect and process information in order to assess the value of an asset. Trading occurs so that market prices continuously reflect the information set; as a consequence, unusual profit opportunities are quickly eliminated. The main laboratory for testing the efficient market hypothesis has been the market for financial claims (primarily equities) in the United States.1 The motivation for research presented in this paper is to test die efficient market hypothesis on a uniform set of data from the international money market. Stated in this manner, die hypothesis is too general for empirical testing. Therefore, two more specific hypotheses are formu-lated:z 1) prices of particular financial claims imply accurate and consis-Richard M. Levich is a faculty member at New York University. This paper was written in 1976, and relies heavily on chapter seven of Dr. Levich's doctoral dis-sertation. He wishes to acknowledge discussions with Robert Z. Aliber, Jaco