Capital Markets : Capital Market

1628 Words7 Pages
Capital market is one of the significant aspects of every financial market. Capital market is a market for buying and selling equity and debt instruments. Capital markets channel savings and investment between suppliers of capital such as retail investors and institutional investors, and users of capital like businesses, government and individuals. Capital markets are vital to the functioning of an economy, since capital is a critical component for generating economic output. Capital markets include primary markets, where new stock and bond issues are sold to investors, and secondary markets, which trade existing securities. Capital markets typically involve issuing instruments such as stocks and bonds for the medium-term and long-term. In…show more content…
Eugene Fama has defined three levels of market efficiency on the basis of the amount of information that is built into (or impounded in) market prices. Each information group reflects the extent to which the efficiency of a market, namely: I. Strong-form efficiency In its strongest form, the EMH says a market is efficient if all information isrelevant to the value of a share and accurately reflected in the market price. It is the most satisfying and compelling form of EMH in a theoretical sense, but it suffers from one big drawback in practice. It is difficult to confirm empirically, as the necessary research would be unlikely to win the cooperation of the relevant section of the financial community. II. Semi-strong form efficiency In a slightly less rigorous form, the EMH says a market is efficient if all relevant publicly available information is quickly reflected in the market price. This is called the semi-strongform of the EMH. If the strong form is theoretically the most compelling, then the semi-strong form perhaps appeals most to our common sense. It says that the market will quickly digest the publication of relevant new information by moving the price to a new equilibrium level that reflects the change in supply and demand caused by the emergence of that information. One problem with the semi-strong form lies with the identification of ‘relevant publicly available information’. Neat as the phrase might sound, the
Open Document