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Stock market efficiency - Dissertation Example
Author : bennyheaney
Finance & Accounting
Pages 13 (3263 words)
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 fully reflected in the current stock prices…
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 increase in their value in the future. Moreover, they always try to identify those securities which will witness the maximum increase in their value. They are of the opinion that they have the capability to select only those securities that are expected to perform unexpectedly well in the market and drive the others out. In the process they use different forecasting techniques as well as some valuation methods. The combination of the techniques helps them in their decisions regarding investments. However the hypothesis states that the techniques are not effective and no one has the capability to predict the outperformance of the market. If the investors enjoy any advantage it is supposed not to exceed the incurred cost of transaction and research. ...