Notes on the Money Market and LM Curve – Eco 3202 – Fall ...

As we know, according to the efficient market theory, the best predictor of tomorrow’s (coke) stock price is today’s (coke) price. Our regression model takes the following form: St+1 = α0 + α1St. Priors: If the efficient market theory holds, we should 1) see a good fit (a high R2), 2) an α1 near 1 and significant. ................
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