Analysis Of Predictability And Efficiency Of Pt Astra Agro Lestari Tbk

Capital markets provide a function which facilitates the buying and selling of long-term financial securities to increase liquidity and their value, Watson & Head (2013). Hence, the Efficient Market Hypothesis (EMH) explains the relationship that exists with the prices of the capital market securities, where no individual can beat the market by regularly buying securities at a lower price than it should be. This means that in order to be an efficient market prices of securities will have to fairly and fully reflect all available information, Fama (1970). Consequently, Watson & Head (2013) believe that market efficiency refers to the speed and quality of how share price adjusts to new information. Nevertheless, the testing of the efficient markets has led to the recognition of three different forms of efficiency in which explains how information available is used within the market. In this essay, the EMH will be analysed; testing of EMH will show that the model does provide strong evidence to explain share behaviour but also anomalies will be discussed that refutes the EMH. Therefore, a judgment will be made to see which structure explains the efficient market and whether there are some implications with the EMH, as a whole.

The basis of Efficient Market theory is considered to have a gap in theory and practice that

4) In an efficient market there is no uncertainty because all available information known by everyone, but in in efficient market there is an uncertainty so we don’t know which company makes profit. Which will not be? Increase in business uncertainty activity changes the opinion of investors; it cause to decreased investment in the particular sectors, compared to increased investment in a sector which offers certainty. The increased in uncertainty lead to bubbles take place in the market, if investors decrease to invest in a particular sector which leads to its decrease in bubble. There would be no bubbles created in the efficient market.

Efficient Market Hypothesis has been controversial issues among researcher for decades. Until now, there is no united conclusion whether capital markets are efficiency or not. In 1960s, Fama (1970) believed that market is very efficient despite there are some trivial contradicted tests. Until recently, both empirical and theatrical efficient market hypothesis was being disputed by behavior finance economist. They have found that investor have psychological biases and found evidences that some stocks outperform other stocks. Moreover, there are evidences prove that market are not efficient for instance financial crisis, stock market bubble, and some investor can earn abnormal return which happening regularly in stock markets all over the world. Therefore, the purpose of this essay is to demonstrate that Efficient Market Hypothesis in stock (capital) markets does not exist in the real world by proofing four outstanding unrealistic conditions that make market efficient: information is widely available and cost-free, investor are rational, independent and unbiased, There is no liquidity problem in stock market, and finally stock prices has no pattern.

Last but not least important, an efficient capital market is one in which stock prices fully reflect all available information. However, the paradox is that since information is reflected in security prices quickly, knowing information when it is released does an investor little good. Furthermore, it is impossible to create a portfolio which would earn extraordinary risk adjusted return. As a consequence, all the technical and fundamental analysis are useless, no one can consistently outperform the market, and new

There is a fierce debate on whether stock market is efficient all these years. Some people advocated Fama’s research in 1960s, and they believe that the Efficient Markets Hypothesis has been well established. However, others do not agree with. They found some evidence to prove market inefficient by empirical researches. This essay mainly focuses on the Efficient Markets Hypothesis, and there are six parts to discuss. Firstly, it will compare the random walk theory and the weak-form of the Efficient Markets Hypothesis; Secondly, it will choose two empirical studies against the weak-form of the Efficient Markets Hypothesis; Thirdly, it will assess the semi-strong form with the weak-form the Efficient Markets Hypothesis; Fourthly, it will evaluate the semi-strong form of the Efficient Markets Hypothesis by two of empirical studies; Fifthly, it will identify the contrast between the strong form of the Efficient Markets Hypothesis with both weak form and semi-strong form; Last but not least, it will use one empirical study to judge the strong form.

EFFICIENT MARKET HYPOTHESISName: Mamunur Rahman Introduction Efficient Market Hypothesis (EMH) is a concept that was developed in 1960 's Ph.D. dissertation that was presented by Eugene Fama. The efficient market hypothesis states that, in a liquid market, the price of the securities reflects all the available information. The EMH exists in various degrees that include weak, semi-strong and strong, denoting the inclusion of non-public information in the market price. The theory contends that notion that it is possible to outperform the market. This is so because the market value contains all the available information and thus such attempts are chances and not skills. The weak EMH indicates that the market prices fully reflect all the

A financial market is said to be efficient if asset respond to relevant information instantaneously (or promptly) and accurately so that no one is able to use information that is already known by the market to earn abnormal returns net of transaction costs and should not deviate from its fundamental true & fair price for a long period of time.

Market efficiency tests include weak, semi-strong and strong three forms. They assume that financial markets are "informationally efficient", or that prices of trading assets, already reflect all known information and therefore are unbiased in the sense that they reflect the collective beliefs of all investors about future prospects. The weak form test is based on the past information and public available information for semi-strong while strong form covers not only the public but also the private information.

First, when it comes to the importance of efficiency, no one can describe better than the professor Gillian Hadfield, who said that efficiency is the “bedrock of gold ” of the capital market,

Following Fama’s (1970) landmark research papers, which explained the principals of the efficient market hypothesis, capital market efficiency has been a pre-eminent and ongoing research topic. Capital market research ‘explores the role of accounting and other financial information in equity markets.’The assumptions of market efficiency are central to capital market research. Market efficiency is considered important because if information is not assimilated into stock market rapidly of if new information appears in an anticipated manner, individuals may exploit this information.‘A market in which prices always fully reflect all available information is called efficient’ (Fama,1970:383). Markets are not

Fama(1970) presented 3 forms of market efficiency including weak form , semi- strong form and strong form. These forms represent respectively level of information that cannot be employed to give prediction on future prices ( past information, public information and private information ). At weak form of market efficiency, Fama argued that past data of stocks are almost useless to predict future prices of stocks. However, recent evidences have claimed that stock market was even inefficient at weak form. For example, the evidence of long term reversal presented by De bondt and Thaler (1985) ; relative strength of stock price discovered by Jagadeesh and Titman (1993) . These two paper has been considered to be the most compelling arguments against weak form of market efficiency.

Academics noticed flaws with the efficient market theory paying attention to the volatile stock price abnormality. Despite these anomalies appearing minor in nature, it

This paper will discuss the nature of security market efficiency and then an application of understanding of stock market bubbles to a particular company. It will also develop and demonstrate an understanding of the topic area of capital market efficiency as well as apply theoretical understanding to the analysis of market information in the context of a company listed on the Shanghai Stock Exchange (SSE). It will illustrate the information on distance from the assumption that financial markets perform well and price changes constantly demonstrate real data. Furthermore, this paper will also illustrate what episodes of volatile security price behavior mean for the notion that security markets work efficiently. On the other hand, the main reason of this paper is to prepare a critical literature review of the competing views that stock market bubbles undermine confidence in the Efficient Market Hypothesis. This will investigate the movements of the share price of Shenergy Ltd and of the Shanghai Stock Exchange Composite Index generally in the light of information available to investors. Moreover, it will also define the actions and circumstances which may be related to share price movements and what has influenced share prices on the SSE over this time. This means, this will explain regarding the share price behavior that have been observed and confirms by any of the academic views encountered in literature review.

Most of the investors try to select the securities which are mis-priced undervalued due to the reason that in future price of these securities will increase and they are able to outperform the market. The portfolio managers identify the securities which are able to outperform the market and they use variety of different techniques to predict the performance of the securities and stock. The financial analysis gives comparative advantage to the investors which results in substantial profits. The efficient market hypothesis argues that any technique is not capable to generate excess due to dependable predictability of stock and securities return. The efficient market hypothesis argues that it is very difficult to predict the future stock return and also the predictions are not consistent. The important and main force behind the price change is the arrival of new information. It is a presumption that market is efficient if the price of stock change averagely without any bias in response to the new information in the market without waiting for any other