Efficient Market Hypothersis - Essay Example

Extract of sample
Efficient Market Hypothersis

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. ...
Download paper


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…
Author : gstiedemann
Download 1

Related Essays

Efficient Market Hypothesis: Is the Stock Market Efficient?
Pesendorfer, 2006; Lim and Tan, 2003; Lo and Mackinlay, 1999), EMH remains one of the major building blocks of modern finance. This theory asserts that the financial markets are "informationally efficient", which means the current prices of assets (i.e., stock, bonds) reflect all the available information. The EMH view of the market is that, when information arises, it spreads very quickly and changes the prices of assets appropriately without delay. Since the information or news is by definition unpredictable, the resulting price changes must be unpredictable. This is called the "random walk"...
7 pages (1757 words) Literature review
Stock Market Efficiency
The intention of this study is the capital market that provides a conducive and convenient venue for the investors that can be either organizations or individual entities to buy and sell shares and bonds in the form of stock exchange on a local and worldwide basis. Due to the advancement in technologies, the world has become a place where human being can travel and reach any destination within no time. Therefore, this has also provided an opportunity for the overseas institutions to participate in the trading activities of the stock exchange based in the vicinity. However, with reference to...
33 pages (8283 words) Dissertation
Event Study for Efficient Market Hypothesis- Ex dividend Data
Anomalies in the expression of the standard, tax centric theory of stock performances have been noted and described. While a tax centric hypothesis has explanatory power, this study examines evidence that there are additional forces of corporate governance, ownership concentration, and market capitalization that can adjust the performance of dividends independent of taxation. This study is a meta-analysis describing the Western standard for market forces pertaining to dividend taxation, on the assumption that stock prices must be adjusted to less than the amount of the dividend in order to...
32 pages (8032 words) Dissertation
Essay: Study on Efficient Market Hypothesis
Different forms of efficient hypothesis, i.e. weak, semi-strong and strong, will be critically analyzed to identify why different forms of market efficiency lead to major issue in fundamental analysis of companies. Implications of weak or semi strong market efficiency will be discussed with evidence. Lastly, arguments on efficient market efficiency will be addressed on behaviour finance perspective. Introduction Efficiency in market means that there is absence of any systematic way to beat the market. The efficient market hypothesis states that the information about the value of the firm is...
10 pages (2510 words) Essay
Efficient Market Hypothesis
The efficient market theory assumes that there are no transaction costs, money market is not segmented and it is easy to enter the money markets. Efficient market hypothesis is explained in three ways. First, there is weak form efficiency. Weak form efficiency stipulates that all past information that is available in public domain is a reflection of stock prices. The prices are considered unbiased and best estimation of security value. It presumes that it is impossible to predict future prices using past information through technical analysis (Pompian, 2006). Therefore, an investor cannot use...
6 pages (1506 words) Essay
Efficient Market Hypothesis
Among the foremost to apply digital computers to perform empirical research in the field of finance, Fama operationally defined the EMH by pointing structure on several information sets accessible to market players. The efficient-market hypothesis necessitates that the agents should expect rationally that on average the overall population is correct (although if no individual is) and each time new pertinent information comes out, the agents should update their anticipations appropriately. Moreover, agents are not needed to be rational. EMH permits that on facing novel information, some...
4 pages (1004 words) Assignment
Based on recent event, discuss whether the stock markets are efficient according to the Effficient Market Hypothesis
This is based on the ideal of ‘a balancing act’, where markets are regarded as knowing the best means forward. However, skeptics of the above, view markets as being necessarily inefficient due to the various forms of risks involved. The reasoning behind the aforementioned theory is that a free and competitive market arena does place various pricing indices to their true basic values. Lo (2007), provides that the Efficient Markets Hypothesis (EMH) does showcase the fact that market pricing indices do fully reflect all available data. This however does not eliminate critique, especially from...
4 pages (1004 words) Essay
Got a tricky question? Receive an answer from students like you! Try us!