As the report stresses diversification of investment spreads the risk over many assets. The concept of Efficient Market Hypothesis (EMH) states that since the stock prices reflect all relevant information in the market, it is not possible for the investor to beat the market by purchasing selling stocks at inflated prices or purchasing undervalued stocks. Thus, in order to beat the market the investor will have to be well informed regarding the true fundamentals of the stocks and carefully follow historical trends. Technical analysis helps and investor to predict future movement of stock prices by analysing past trends whereas fundamental analysis considers a top-down approach that analyses not only the fundamental financial position of firms but also macro-economic and industry trends.
From the essay it is clear that the efficient market hypothesis assumes that in financial markets, the current prices reflect all the information available in the market and thus the true value of the stocks can be reflected from their past security prices. The theory assumes that the market participants behave rationally and try to maximize their returns by processing all information available to them. From above it can be said that the securities are correctly priced provided the information available to public. The best strategy to beat the market is to construct and evaluate the portfolio performance using technical analysis and fundamental analysis. ...Show more