Efficient Market Hypothesis

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Efficient Market Hypothesis

States that all relevant information is fully and immediately reflected in a security's market price, thereby assuming that an investor will obtain an equilibrium rate of return. In other words, an investor should not expect to earn an abnormal return (above the market return) through either technical analysis or fundamental analysis. Three forms of efficient market hypothesis exist: weak form (stock prices reflect all past information in prices), semistrong form (stock prices reflect all past and current publicly available information), and strong form (stock prices reflect all relevant information, including information not yet disclosed to the general public, such as insider information).

Efficient Market Theory

A controversial model on how markets work. It states that the market efficiently deals with all information on a given security and reflects it in the price immediately. The model holds that technical analysis, fundamental analysis, and any speculative investing based on them are useless. The model has three forms: weak efficiency, which holds that technical analysis is ineffective, semi-strong efficiency, which holds that fundamental analysis is ineffective, and strong efficiency, which states that even insider information is immediately reflected in the security prices. Investors and academics disagree on how well the model works.
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The author's arguments about the usefulness of such concepts as efficient markets hypothesis, financial intermediation, asset prices, bubble detection, and principal-agent conflicts are compelling.
When the efficient markets hypothesis was developed, much of the investing was conducted by professional investors and often involved investing companies' pension funds for defined benefit pension programs.
Economists working on the border of economics and psychology, for example, argued that behavioural finance, in which human foibles are brought to bear to explain the failure of the so-called efficient markets hypothesis, would be given more prominence.
On the validity of the weak-form efficient markets hypothesis applied to the London stock exchange, Applied Financial Economics 7: 173-176.
Given the simple form of this financial market with a large number of interested participants, generally widespread availability of game results, and betting lines (pointspreads and totals), sports wagering markets became a natural place to test the efficient markets hypothesis.
Chapter 11 and 12 deals with technical aspects of risk and return models and efficient markets hypothesis with required figures, data and models.
Lo to reconcile the Efficient Markets Hypothesis with the many anomalies uncovered by studies in behavioral finance.
Efficient markets hypothesis (EMH) asserts that in an efficient market price fully reflect available information.
Dowling describes the traditional view of finance in the efficient markets hypothesis (EMH), examines cost, ability and speed, and asks if empirical studies of EMH shed any light on markets and information.
Samuelson has argued that one would expect that the efficient markets hypothesis should work better for individual stocks than for the stock market as a whole:
In explaining why markets have bubbles, he succeeds in poking holes in the efficient markets hypothesis, which dominates finance.
Proponents of the efficient markets hypothesis point to consumer uncertainty as one potential explanation for the high rates of return that prevail in markets for energy-efficient equipment.

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