To What Extent are Stock Market Anomalies Evidence of Market Inefficiency?

To What Extent are Stock Market Anomalies Evidence of Market Inefficiency? Essay example
Masters
Essay
Finance & Accounting
Pages 8 (2008 words)
Download 0
To what extent is stock market anomalies evidence of market inefficiency? Table of Contents Introduction 3 Inferences from long term returns 4 Problems related to modelling 4 Econometric Forecasting 4 Reliability of individual studies 5 IPO’s and SEO’s 5 Stock Split 6 Conclusion 7 References 8 Introduction Depending on the seasonality of the stock markets the deviation from the efficient market theory was analysed by Eugene Fama (1970, 1991)…

Introduction

Eugene Fama has taken the specific asset pricing model such as the APT (Asset Pricing Theory and the CAPM (Capital Asset Prising Model) as the standard paradigm. Since the stock prices of different firm over the markets is different, i.e. the market value for the riskier stocks are low providing higher rate of return and vice-versa but in a cross section market the inverse will be applicable. Thus based on the evaluation made by Fama we can analyse the factors responsible for the stock markets anomalies resulting from market inefficiency (Keim & Ziemba, 2000, pp.92-94) Momentum and Overreaction anomalies Through momentum of anomalies the short-term pattern of share pricing of the companies. According to the theory lead by Werner DeBondht and Richard Thaler the over reaction of investors to the public information is completely unnecessary as the stock prices are evaluated according to the past performance of the stock market which may not portray the true picture of the market information. Thus the stock prices with inflated or depressed pricing may result in realising good or bad information which cannot be depended upon. ...
Download paper
Not exactly what you need?

Related papers

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…
Stock market efficiency
profits over and above the profits made by the other players in the market by using this information. The hypothesis deals with two of the fundamental questions in finance. The first of them is why there is price change in the market for securities while the second considers how the change actually occurs. Investors involve themselves in identifying the securities that are expected to witness an…
Stock Market Efficiency
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…
Inefficiency Within a Stock Market Creat Barrier to Fulfulment of its Main Function and Hence can Cause Significant Difficulties
The main functions of the stock market includes evaluation of the securities those are listed in the stock market which in turn help the companies to get more capital for production, thus the chances of industrial growth increase. The functions of the stock market also includes the marketing of the government securities, also provide safety in the dealings as the companies have to abide by the…
Monetary Policy and the Stock Market: Empirical Evidence from Nigeria
The major findings include the impact of long run monetary policy on the stock market returns of Nigeria. The stock market returns get reduced because of high rate of Treasury Bill. This provides the evidence that efforts in monetary policy contributes in slowing down the economy. The returns in stock market witness a positive effect from current interest rate and interest rate lagged by one…
Market efficiency
There are various forms or degrees of market efficiency which exists. These comprise of strong market efficiency, semi-strong market efficiency and the weak form market efficiency (Ho & Yi, 2004; p. 57). Acknowledging the efficient market hypothesis in its simplest and purest form might be hard; nevertheless there are three main types of efficient market hypothesis which have the purpose of…
Stock Market
The essay covers how the investor should invest the above amount, what reasons the investor has for choosing the stocks and the manner of investment. Also included in this essay is the detailed but precise analysis of the stock selected by the investor. The essay present analysis of the company whose stock has been purchased by looking at the historic performance of the company based on stock…