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Essay example - Stock Market Efficiency

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Masters
Essay
Finance & Accounting
Pages 6 (1506 words)
INTRODUCTION The main objective of making any kind of investment is to earn return and this is the reason why investors invest in stocks, projects, assets and different types of securities. However every investor would like to earn more money than the other investor and outperform him…

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One of the most famous and talked about theories in this regard is of Efficient Market Hypothesis. Because information is available to all the investors who are currently in the stock market therefore everyone would be able to predict the price of the stock and how these prices would vary in future as well. As everyone will be having information therefore there would be no advantage to any investor. An efficient financial market has been defined as the one where prices are able to completely reflect the available information . When it comes to efficiency of stock market or financial market, then it refers to efficiency of allocating resources. In an efficient financial market, funds are directed from lenders to the borrowers in such a way that it is beneficial for the society. According to efficient market hypothesis financial markets an investor cannot earn more returns than the average market returns in the long run as every investor has the information. STOCK MARKET AS AN EFFICIENT ALLOCATOR OF THE RESOURCE Stock market plays the role of allocating financial resources in different sectors. In order to allow the process of efficient allocation of resources and overall growth and development it is necessary for the stock market to be efficient. ...
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