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Critically review and discuss the concept of market efficiency and empirical approaches to test for it.
Finance & Accounting
Pages 11 (2761 words)
CRITICAL REVIEW OF THE CONCEPT OF MARKET EFFICIENCY AND EMPIRICAL APPROACHES TO TEST EMH INTRODUCTION The financial markets have evolved significantly since its evolution. Among the prominent theories of the developments since the determinations of the finance as a discipline, the concept of the Efficient Market hypothesis is one that has prevailed to date.
The aim of this paper is to develop critical review of the concept of the efficient market hypothesis. The paper is developed in the following sections: Section I: This section covers the concept definition, historical development, assumptions and the types of the EMH. All these aspects alongside determine the associated criticisms. Section II: Critical review of the approaches to test the EMH. Section III: this section wraps up the paper with keynotes of discussion and conclusion in specific reference to Global Financial Crises of 2007. EFFICIENCY MARKET HYPOTHESIS (EMH) The formal definition of the efficient market hypothesis is one that was presented by the Fama and French in 1970 (Sewell, 2011). According to the Fama (1970) the efficient market hypothesis states that financial market is said to be efficient with respect to the information, when the prices set by the market are fully reflective of the impact resulting from such information. ...
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