Market efficiency - Assignment Example

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Market efficiency

Private market efficiency refers to the measure of access to information that market players can use to maximize their gains on investment at a minimum transaction cost (Jarrow & Larsson , 2011). Market efficiency widely known as the Efficient market Hypothesis (EMH) and introduced by Eugene Fama in 1970 stresses that market prices is a reflection of all the available information to the investors regarding a particular stock at a particular time of trading. According to Fama‘s interpretation of an efficient market is a situation were no individual investor has an advantage over others in predicting excess returns on securities above the existing market price (Jayasuriya, 2008). This claim is based on the premise that at any given time no one will have information over and above what is available to other players. The information necessary to make judgment is often readily available to all players at the time of trading and for this reason no individual player can beat the market. Valuation of investment is the main determinant of whether a market is efficient or not and where the inefficiencies are evident. An efficient market can be determined through market prices considering that it is only estimate for measuring deviation from true value (“Market Efficiency”, 2011). This is because an inefficient market will only be determined by market price deviation from the true value. Efficient market must be supported by a number of conditions most of which revolved around valuation and information availability for it to take place. ...Show more

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Private market efficiency refers to the measure of access to information that market players can use to maximize their gains on investment at a minimum transaction cost.Market efficiency widely known as the Efficient market Hypothesis and introduced by Eugene Fama in 1970 stresses that market prices is a reflection of all the available information …
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