The claim that financial markets are efficient is backed by an implicit argument that misinformed "noise traders" can have little influence on asset prices in equilibrium. If noise traders' beliefs are sufficiently different from those of rational agents to significantly affect prices, then...

A forecast produced by an econometric model is a weighted aggregate of predetermined variables in the model. In many models the number of predetermined variables used is very large, often exceeding the number of observations. A method is proposed in this paper for testing an econometric model as...