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. Weak form efficiency Type of efficiency which states that today’s Prices of assets and securities shows the reflection of past prices. Therefore, technical analysis is useless to predict the prices in order to beat the market (Chandra 2008). Efficient market hypothesis (EMH) is also called as Random Walk Theory (Hebner 2006). This theory suggests that the movement or fluctuation of stock price is a true proposition of all the related information regarding the value of the company that is available in the market. According to this theory nobody earns profit more than the overall return of the market. In other words it can be said that depending on the available information everyone earns the same level of return in the investment of stock. There are some critics on this theory that are related to fundamental and electrifying issues of finance. For example, why price of stock change frequently and what are the factors that cause this change. All the stock related information has very important value for both investors as well as financial managers (Cai 2009). The concept of “Efficient market “was first developed by Eugene Fama in 1965 and he said that “in an efficient market, on the average, competition will cause the full effects of new information on intrinsic values to be reflected "instantaneously" in actual prices.” (Arffa 2001) The primary target of all the investors and finance managers is to invest in the stock that outperforms the market and provide more return as compared to other stocks. Similarly, most of the investor selects the securities that are undervalued having expectations that there price will beat the market, and in the end they gets their desired return. All these decision are based on different valuation techniques of stocks, future expectation and predictions depending on the available information. Effective use of the valuation techniques and prediction enables investor to get more return on the investment made. EMH presumes that no one can outperform the market on the basis of predictions. If a manger of any mutual fund company with total assets of 10 billion increases the returns of the
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…
In this paper, pros and cons of all these five methods will be discussed and in the end the best method out of the all five and the worst of all five will be deduced based rational discussion. These five methods are: a. Buy stocks of the companies that have undervalued ratings.
The stock market can be very profitable but can also lead to losses. The stock market is very profitable creating a lot of interest to many people and though it may result in losses, there is a lot of benefit to the institutions selling their stocks, the individual that buy it and the governments of the various countries, making it one of the most popular earners.
Rather than benefiting in terms of a specific dividend payment or bond interest, the investors benefit by receiving a proportionate share of the mutual fund's investment return or suffer by absorbing a proportionate share of the mutual fund's investment loss.
Commodities are traded in commodities markets, with derivatives are traded in a diversity of markets. The size of the worldwide 'bond market' is estimated at $45 trillion. The size of the 'stock market' is estimated at about $51 trillion. The world derivatives market has been estimated at about $480 trillion 'face' or nominal value, 30 times the size of the U.S.
In the context of business enterprises, it could be said to be a group of firms or corporations which have identical business structures and strategies, which make them amenable to more or less similar performances, considering the host of factors that impinge upon the business enterprises.
This uncertainty is related with their short and long term future state. This characteristic is disagreeable for the investor while it is also inevitable whenever the stock market is selected as an investment tool.
This study “Testing the