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Efficient Market Hypothersis
Finance & Accounting
Pages 8 (2008 words)
Efficient Market Hypothesis Introduction The 2008 economic recession and the current European Sovereign Debt Crisis have brought economics to the forefront of public thought perhaps more than anytime since the Great Depression. While the American economic collapse exposed many of the high risk and borderline unethical practices of large-scale investment banking and insurance agencies, an even deeper concern were the structural aspects of government that allowed these practices to occur.
While the extent of the validity of these criticisms remains debated, the efficient-market hypothesis (EMH) has held a pronounced influence on political and academic thought. This essay considers the extent that the market, as Warren Buffet claims, functions under irrational processes, or can be explained in rational terms through the efficient market hypothesis. Outline of the Efficient Market Hypothesis (EMH) In its modern incarnation Professor Eugene Fama first articulated the efficient-market hypothesis in the early 1960s during his time at the University of Chicago Booth School of Business. From an overarching perspective, the efficient market hypothesis theory contends that for investors it is impossible to ‘beat’ the market on a consistent basis. The main reasoning behind this notion is that the market will reflect all available information for the particular investment, such that gaining any sort of edge over other investors is made impossible. This contention does not necessitate that individuals act in rational ways. ...
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