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.
References in periodicals archive ?
Fama (1970) observed that there is enough evidence of a positive correlation in daily price changes and returns on common stocks, but this positive dependence was not large enough to reject the efficient markets hypothesis.
Its particular focus is on creating stable and efficient markets for recycled materials and products and removing the barriers to waste minimization, re-use and recycling.
We must create incentives for people to invest in more efficient technology, increase their skills, and organize efficient markets.
Whether speculative bubbles sometimes go too far and implode, as bubbles do, or are simply reactions of efficient markets to fundamentals (albeit in some cases, to governments changing the rules), seems to me to rest on one's view of the evidence to some extent, but also on prior beliefs.
The concept of cross-sectional efficiency is based on Granger's [Oxford Bulletin of Economics and Statistics, 1986] postulation that asset prices, determined in efficient markets, cannot be cointegrated.
The efficient market hypothesis has been around since 1962, the theory based on a simple rule that states the price of any asset must fully reflect all available information.

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