Efficient markets theory

Efficient markets theory (EMT)

Principle that all assets are correctly priced by the market, and that there are no bargains.
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 ?
Efficient markets theory (EMT) says that investors immediately incorporate all available information about given stock into its price and therefore the stock price is based solely on its fundamental value.
Still, the existence of mispricings that are so large and persistent that academics -- rather than investors -- are the first to discover them deals a strong blow to the efficient markets theory. - Bloomberg View
Widows and orphans, in conventional investment industry thinking, don't go long emerging markets, but correctly implementing efficient markets theory, according to Basten, means that "even our most conservative investor earns a piece of the far end of the efficient frontier."
One of the more extreme abuses of the invisible hand has been efficient markets theory. Economists like Eugene Fama of the University of Chicago claimed that markets for stocks, bonds, and other financial instruments were so rational that they accurately reflected the future value of the underlying company.
A large part of the academic community remains utterly mired in efficient markets theory and more insulated than eve from the facts on the ground.
stock market, the dividend-price ratio has never predicted dividend growth in accordance with the simple efficient markets theory.
For readers familiar with the Efficient Markets Theory, a prediction market is actually an "efficient" market in the "strong form" of the theory.
However, what new theory would take its place is not clear (it may be that just a minor alteration in the efficient markets theory is needed).
Efficient markets theory. Efficient markets theory, first advanced and tested by Fama, Fisher, Jensen, and Roll (1969), explains how security prices reflect publicly available data.

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