The prediction may be based on an outlook of market or economic conditions resulting from technical or fundamental analysis.
The efficient-market hypothesis is an assumption that asset prices reflect all available information, meaning that it is theoretically impossible to systematically "beat the market."
[2] At the Federal Reserve Bank of St. Louis, YiLi Chien, Senior Economist wrote about return-chasing behavior.
Some algorithms attempt to predict the future superiority of stocks versus bonds (or vice versa),[4][5] have been published in peer-reviewed journals.
Moving average strategies are simple to understand, and often claim to give good returns, but the results may be confused by hindsight and data mining.
Mutual fund flows are published by organizations like Investment Company Institute, Lipper, Morningstar, and TrimTabs.
[17][18] Studies confirm that the general tendency of investors is to buy after a stock or mutual fund price has increased.
[25] Studies by the financial services market research company Dalbar say that the retention rate for bond and stock funds is three years.
The efficient-market hypothesis claims that financial prices always exhibit random walk behavior and thus cannot be predicted with consistency.
However, because the economy is a complex system that contains many factors, even at times of significant market optimism or pessimism, it remains difficult, if not impossible, to predetermine the local maximum or minimum of future prices with any precision; a so-called bubble can last for many years before prices collapse.
Likewise, a crash can persist for extended periods; stocks that appear to be "cheap" at a glance, can often become much cheaper afterwards, before then either rebounding at some time in the future or heading toward bankruptcy.
[citation needed] Others contend that predicting the next event that will affect the economy and stock prices is notoriously difficult.
For examples, consider the many unforeseeable, unpredictable, uncertain events between 1985 and 2013 that are shown in Figures 1 to 6 [pages 37 to 42] of Measuring Economic Policy Uncertainty.