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Corporate finance - Essay Example
Author : jaden70
Finance & Accounting
Pages 6 (1506 words)
Corporate Finance Corporate Finance INTRODUCTION: To understand capital markets and its functions it is important to delve into the concept of stock market efficiency. This concept deals with the movement in share price in the stock market and the factors affecting the movement…
Market efficiency is a crucial factor in deciding the investment strategies of an investor. If the securities market is efficient, the best estimate and returns will be reflected in the price of the shares and there will be no undervalued securities that would offer higher return than expected. However, opposite could be the case in the weak efficient markets. (WOOD, DASGUPTA & POSHAKWALE, 1995) THREE FORMS OF MARKET EFFICIENCY BY FAMA (1970): In this aspect the most contributing work was presented by Fama in 1970. He formulated a market efficiency hypothesis (EMH) which discussed the three types of market efficiency that can prevail in a capital market depending on the available information in the market. These three forms of market efficiency are (1) Weak form efficiency (2) Semi-strong form efficiency (3) Strong from efficiency. 1. Weak Form Efficiency: The weak form of market efficiency hypothesis asserts that the current stock price reflects all the information related to historical prices or past price movements only. This information includes trading volume, rate of return and market generated information etc. ...