The Efficient Market Hypothesis Essay Example | Topics and Well Written Essays - 1500 words

The Efficient foodstuff Hypothesis - Essay ExampleIn this way, only in take a hopation bears the power to move commercialise prices.There happens to be three levels of market efficiency as delineated by Fama (1970) viz. weak, semi-strong and strong. harmonize to Fama (1970), weak form of market efficiency that market prices ar affected by a acquits past performance and previous returns. The semi strong form of market efficiency suggests that market prices reflect all the available information. This degree of market efficiency exists when there are no under or oer valued securities in the market and when new information affects market prices very rapidly. The strong form of market efficiency elaborates that all types of information, whether public or private, affects market price of securities. Despite the importance of the Efficient Market Hypothesis, its validity is highly debatable in the literature which is discussed in this essay.According to the Efficient Market Hypothesis, stock prices move in negative and positive directions while responding to information and announcement of events. However, there has been staunch concern owing to market anomalies that indicate deviations from Efficient Market Hypothesis such as Holiday effect e.g. Ariel (1990), Monday effect e.g. French (1980), November effect e.g. Bhabra, Dhillon and Ramirez (1999), January effect e.g. Bhardwaj and Brooks (1992) and P/E ratio effect e.g. Basu (1977). Critics are also of the view that movements in stock prices also reflect psychological factors and irrationality on the part of investors e.g. La Porta, Lakonishok, Shliefer, and Vishny (1997), Shleifer and Summers (1990) etc.. There has also been significant prove that economic conditions great affect stock returns e.g. Schwert (1989). The following paragraphs examine the Efficient