We estimate a time varying autocorrelation of stock returns as a degree of market inefficiency; the relative inefficiency of the U.S. stock market varies from 1955 to 2006.

This note provides explanations for an unexpected result, namely, the estimated parameter of the correlation coefficient of the trend shock and cycle shock in the state–space model is almost always (positive or negative) unity, even when the true variance of the trend shock is zero. It is...