Market efficiency Essay example
Masters
Essay
Finance & Accounting
Pages 7 (1757 words)
Download 0
MARKET EFFICIENCY Student’s name Course title Name of Institution Date of Submission Forms of Market Efficiency Market efficiency as put forth by Fama (1970; p. 57) proposes that any given moment stock prices totally replicates all the information accessible on a given market or securities…

Introduction

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 reflecting the extent to which it can be used in the security markets. First is the strong-form efficiency which is the strongest form and it states that all information and facts in the market, whether in the public or private hands is incorporated in the stock prices. There is no insider information that might grant the investor an extra advantage (Cataldo, 2003, p. 27). Secondly, there is the semi-strong efficiency form of efficient market hypothesis. This asserts that all public information present in the market is used in the derivation of the stock’s present price. In this form of efficiency fundamental and technical analysis cannot be applied to achieve better profits for the investor. Lastly, there is the weak form efficiency which alleges that all historical prices of a security are replicated in the current stock’s price. Thus, technical analysis cannot be of any use in predicting the future stock’s price and eventually beating the market (Basse & Bassen, 2010; p. 51). ...
Download paper
Not exactly what you need?

Related papers

Stock Market Efficiency: Is the UK Capital Market Really Efficient?
The aims and objectives of the research elucidate and make specific the means of the exploration and analysis. In fact, the methodologies used in following the line of investigation was the primary sources that include personal observations of the researcher, telephonic and personal interviews with influential capital marketplace personals, company managers, several brokers; and secondary sources…
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…
Term paper on Capital market efficiency
In addition, reference is made to market ethics, at the level that ethics can secure, at least up to a level, market efficiency, being related to all three aspects of market efficiency, i.e. information, institutions and transactions. The literature developed in this field proves that existing research in regard to market risks and potentials focuses on the potentials of markets to become…
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…
Discuss the relationship between rationality of investors and the market efficiency.
33). In 1950’s, Simon set out to develop a fresh model to describe the resolution making processes. Simon postulates that well-meaning investors undertake rational choices under various constraints. These constraints create boundaries in which rational resolutions can be taken; these draw into question the postulations of rational selection in the utility curve (Livanas, 2004, p. 3). In…
BEHAVIOURAL FINANCE AND MARKET EFFICIENCY
Due to the presence of inefficiency within the global market, the sales and profitability of a company is not only affected but also the country’s ability to build a more reliable capital asset. Therefore, in response to poor market efficiency, the study on behavioural finance has gained importance back in 1990s2. Using knowledge on behavioural finance, the main causes and underlying drivers of…
Theories Market Efficiency Versus Investor Prospects
The reforms specified under the Sarbanes-Oxley act mandates the practices specified above. These practices have for long been considered to be crucial factors of a robust corporate governance framework. The act stressed the importance of not allowing external auditors to perform lucrative non-audit services. One example of such services is information technology consultancy provided by the…