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).
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
As a market maker, Virtu provides deep liquidity that helps to create more efficient markets around the world.
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.
'Strong institutions mean more efficient markets that attract stronger flows of investment,' Sir Suma said.
Cochrane, J.H., 1991, "Volatility Tests and Efficient Markets: A Review Essay", Journal of Monetary Economics, 27(3), 463-485.
In doing so, it argues that the descriptive and normative foundations of the efficient markets hypothesis are closely related.
The Fair and Effective Markets Review, being led by the Bank of England's Minouche Shafik, is looking to restore a number of ideals of efficient markets, in an effort to make sure that acting above board was also good for business.
Established in 1929, the US commission goal aims at protecting investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.
According to the efficient markets hypothesis, markets reflect all the information available to investors and their price fluctuations are not predictable (Markowitz, 1959, 1970; Samuelson, 1965).
as well as announcements of major investments in energy which will open the market for private equity, all aimed at providing quality electricity to consumers and energy independence " said (FYR) Macedonia's Deputy Prime Minister for Economic Affairs Vladimir Peshevski.He stressed that the methodology of determining the price of electricity within the existing system is the responsibility of the ERC, but it is through the establishment of efficient markets electricity market model can bring electricity to be supplied at lower prices/ "I would not prejudice the advance in which direction the price will move.
Efficient markets rely on the efficient distribution of information.
The efficient capital market hypothesis contains two basic premises: (1) a security's price encapsulates all publicly available information about the firm, and (2) security prices "react almost instantaneously and in an unbiased manner to any new information." (8) The theory presupposes that the market in question is "efficient" or "well-developed." Further, the source of public information does not matter for efficient markets: All public information that could affect securities' prices will be digested by market participants and reflected in securities' prices.

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