Literature Review Undergraduate 1,653 words

Excess Stock Returns, Technical Analysis & Market Efficiency

~9 min read 4 sections Finance · Stock Market

Abstract

This paper addresses two core questions in financial economics: whether technical analysis can reliably predict excess stock returns, and whether return predictability is a meaningful indicator of market efficiency. Drawing on foundational works by Fama, Asness, Johnson, Kim, and De Bondt and Thaler, the paper reviews the empirical evidence on momentum effects, the Efficient Market Hypothesis (EMH), and the tendency of markets to over- or under-react to new information. The analysis concludes that while returns and broader market conditions generally move in tandem, anomalies exist — as illustrated by cases such as Netflix and Enron — and that purely technical analysis rarely captures the full picture required to identify truly excess returns.

Key Takeaways

Introduction: Two questions on stock returns and market efficiency
Literature Review: Survey of five key financial economics studies
Analysis: Applying literature to answer both research questions
Conclusion: Markets and returns correlate but anomalies persist

✍️ How to write this paper — guide, tools & examples ▾

What makes this paper effective

The paper directly addresses both assigned questions and keeps its argument focused throughout, avoiding unnecessary tangents.
It synthesizes multiple peer-reviewed sources — Fama, Asness, Johnson, Kim, and De Bondt & Thaler — and shows how they collectively speak to the same core issues rather than treating each source in isolation.
The use of concrete real-world examples (Netflix's pricing strategy, the Enron collapse) grounds abstract financial theory in recognizable events, making the argument more persuasive and readable.

Key academic technique demonstrated

The paper demonstrates effective source-driven argumentation: each scholarly source is introduced, summarized at the claim level, and then connected to the paper's central thesis. Rather than simply reporting what each author said, the writer draws comparisons across sources (e.g., noting how Johnson echoes the cautious optimism of Asness) to build a coherent analytical position.

Structure breakdown

The paper opens with a brief framing introduction that states both questions to be answered. A literature review section follows, working through five scholarly sources in sequence and extracting their relevance to return predictability and market efficiency. The analysis section then applies those sources to answer each question directly, incorporating illustrative examples. A short conclusion synthesizes the overall finding that market conditions and returns are generally correlated but not immune to significant exceptions.

📘 Read the full literature review guide → Generate citations → Build an outline → Draft a literature review → 📚 More Stock Market examples →

Essay 1,653 words

Introduction

This paper addresses two basic questions through a brief literature review. The first question is whether the empirical evidence available supports the predictability of stock returns using technical analysis. The second question asks for a critical evaluation of whether return predictability is a good indicator and test of market efficiency. While some investors can generate strong returns even in the most volatile economic climates, there is generally a correlation between overall market performance and investment returns during the same period, based on the totality of the evidence reviewed here.

3 Sections Hidden · 1,225 words

Literature Review780 words

Asness et al. (2013) approach both questions in a fairly systematic way. They assert…

Analysis380 words

Regarding technical analysis and its link to excess stock returns, it would seem that there is no fully reliable method for identifying excess returns through conventional analysis alone. There are many factors not well captured in the literature reviewed…

Conclusion65 words

It is generally true that returns, market conditions, and the overall performance of a firm move in lockstep. However, there are always exceptions to this rule. Ford, Apple, and…

View Full Document

References

Asness, C., Moskowitz, T., & Pedersen, L. (2013). Value and momentum everywhere. Journal of Finance, 68(3), 929–985.

De Bondt, W., & Thaler, R. (1989). Anomalies: A mean-reverting walk down Wall Street. Journal of Economic Perspectives, 3(1), 189–202.

Fama, E. (1998). Market efficiency, long-term returns, and behavioural finance. Journal of Financial Economics, 49, 283–306.

Johnson, T. (2002). Rational momentum effects. Journal of Finance, 57(2), 585–608.

Kim, J., Shamsuddin, A., & Lim, K. (2011). Stock return predictability and the adaptive markets hypothesis: Evidence from century-long U.S. data. Journal of Empirical Finance, 18(5), 868–879.

Macey, J. (2015). Efficient capital markets, corporate disclosure and Enron. Yale Law School Faculty Scholarship. Retrieved from

Malkiel, B. (2003). The efficient market hypothesis and its critics. Journal of Economic Perspectives, 17(1), 59–82.

Scott, J. (2011). Everyone needs to just calm down about the Netflix price hike. ReelSEO. Retrieved March 6, 2015.

Key Concepts in This Paper

Excess Returns Technical Analysis Market Efficiency Efficient Market Hypothesis Momentum Effect Value Effect Return Predictability Market Anomalies Behavioral Finance Information Asymmetry