A Theory Of The Efficient Market Hypothesis

1635 Words7 Pages
The main idea of market efficiency reflects that all the information which is associated with stock market is basically showing on the stock process in any time. It appears that the stock prices are unpredictable because the random changing of the new information affects it. Under the circumstance of that the French mathematician Bachelier (1900) first came up with the idea about that random information results to the unpredictable prices in marketing concept. After that Osborne (1964) brought a theory of random walk, and then accomplished by Fama (1965). Since the day of creation of market efficiency, it has been criticised by researchers all the time; but it still has significant impact on financial field. In 1970, Fama developed the…show more content…
This essay examines all three forms in different tests. Through the analysis result to implies how news will affect the prices. Then, making the evaluation suggests the future performance of EMH. According the definition of EMH, the price which shown on the stock market already were the best results that shows the company’s operating ability. Therefore, it does not matter how much effort made by the stock firm and investor, and how cautious they are. Information already reacted in the stock prices, whether it is an expensive stock or a cheaper one. It seems that how much information could be reflected in price might the distinction of different form of market efficiency. Roberts (1967) had clearly defined the difference between the weak form, semi-strong form, and strong, and it further summarised by Fama (1970) to define the information efficiency, which is: “A market in which prices always ‘fully reflect’ available information is called ‘efficient’”. In the fact that several form market efficiency act in EMH indicates that does those forms real acts in the capital market should be analysed and proved. According to Burton and Shah (2013, P8), they argue the strong form market efficiency should contain both semi-strong and weak form market efficiency; therefore, they define the strong form market efficiency as the price directly included and exactly reflected all the news which no
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