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Investing money into the stock market,reasons - Essay Example
Author : johannachamplin
Finance & Accounting
Pages 8 (2008 words)
Financial Management [Supervisor Name] Financial Management The primary motive for putting or investing money into the stock market is to get superior return on it. Investors not only try to get return, but also to outperform or in other words, to beat the market return…
Market efficiency Eugene Fama in 1970 developed the concept of market efficiency on the basis of EMH (efficient market hypothesis). He suggested that at any given time the prices of stocks are purely dependent on the information present in the stock market regarding stock or overall market (Moyer, McGuigan & Kretlow 2008). He also concluded that no one can efficiently predicts the exact future return on any stock because no one has access to the information which is not easily be predicted or available to everyone else (Damodaran 2002). Fama divided efficiency of market into three levels: Strong-form efficiency Shows that stock price truly reflects all the information available, whether it is public or private. Investors did not get any additional value because it is quite impossible to predict the prices. Even the availability of insider information does not benefit the investor in any way (Moyer, McGuigan & Kretlow 2008). Semi-strong efficiency Movement of asset prices truly reflects the availability of public information; therefore investor having insider information gets the investing advantage. Investor does not get any stock advantage through any fundamental or technical analysis. ...
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