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Event study for efficient market hypothesis – ex dividend data - Dissertation Example

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Masters
Dissertation
Finance & Accounting
Pages 11 (2761 words)

Summary

This research aims to test the efficient market hypothesis in the context of Indian stock market. This research aims to study the same with ex-dividend declaration in the Indian stock markets and to test whether investors gain any abnormal returns using such surprise information…

Extract of sample
Event study for efficient market hypothesis – ex dividend data

The intention of this study are efficient market hypothesis. The theory ‘efficient market’ was formulated by Eugene Fama in 1970. He described an efficient market as a market where at any point in time, actual prices of individual securities already reflect the effects of information based both on events that have already occurred and on events which, as of now, the market expects to take place in the future. The efficient market prices represent the intrinsic value of the securities. Researchers have developed this hypothesis to be known as the Efficient Market Hypothesis (EMH) which states that the market prices reflect all information known to the public. Market react to any new information available in the market immediately as reflected in stock prices rather than gradually adjust it. This theory is an important concept in the area of understanding equity markets and cost of equity capital. Another important concept in the area of equity markets is that of random walk hypothesis. According to this hypothesis, the anticipated price of an asset fluctuates randomly around its expected value. Both the efficient market and random walk hypothesis, it is a futile exercise to try and find overpriced and under-priced assets. This is because, in an efficient market, the assets in the stock market are already reflecting all the available information. There are no future predictions that can be made about how a market will behave. The price of any assets is already a reflection of the best estimates for the expected risk and return of the assets. ...
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