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Based on recent events, discuss whether the stock markets are efficient according to the EMH. - Essay Example
Finance & Accounting
Pages 4 (1004 words)
Based on Recent Events, Discuss Whether the Stock Markets Are Efficient According to the EMH Contents Introduction 3 Discussion 3 Conclusion 5 References 7 Introduction Market efficiency is an important concern for the optimal allocation of resources with the objective of achieving the most productive purposes and, in turn, contributing to economic growth of a country…
Whether the market is efficient or not remains a debatable topic among the stock market investors. Secondly, according to this hypothesis, a single investor is never able to get higher profitability than another investor by investing the same amount of fund. Lastly, EMH asserts that no investor would be able to surpass the average annual returns that all the funds and investors are able to achieve cumulatively. Discussion A competitive information market would allow private gains from producing private information, and tests of competition would require estimates of the cost of private information production. According to the efficient market hypothesis, stock market participants tend to form rational expectations of the future in the aggregate by comprehending all the information available in the market. Assuming the stock market efficiently discounts the rational expectations of investors, the prices of stocks accurately reflect an assessment of the intrinsic value based upon the relevant information available (Gorda, 2005, p. 234). Thus, only the unexpected new information is likely to affect a movement in stock prices. ...
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