This report stresses that market efficiency has been tested over a long period of time and it has been observed that movement of the stock prices follow a random walk. The random walk theory states that an investor can have a good chance of beating the market if they throw darts on New York Times stock listing pages. Investors who adhere to the random walk theory believe that searching for undervalued shares or predicting the future stock price is just a waste of time. Any new developments of government like restructuring the tax legislation, controlling the financial crisis and the inflation etc reflect in share prices of the different corporation. Followers of random walk theory believe that is impossible to predict future events and they are left with no other choice but to accept the efficient market hypothesis.
This essay makes a conclusion that it cannot be denied that the government interventions play a crucial role in stabilizing the economies that were overturned due to the financial crisis as result of devaluation of properties or inability to service the debt obligations. Due to the global crisis, the investor confidence eroded which had adverse impact on the stock prices. The fluctuation in the stock prices was also due to drift in the present market condition. As a result of revised regulations and containing policies by the government, the economies started to revive and the interest of the investors were protected. This resulted in the decrease in volatility of share prices which reflects belief of the investors from their anticipation of future events in the economy. This follows the efficient market hypothesis. ...Show more