Examples Of Efficient Market Hypothesis

1092 Words5 Pages
1. Efficient Market Hypothesis - The concept and its assumptions What is Efficient Market Hypothesis? Efficient Market Hypothesis (EMH) which published in Eugene Fama's 1965 paper "Random Walks In Stock Market Prices". It is based on a “random walk theory” which earliest examined by Maurice Kendall in 1953, he concluded that the movement of security prices on the security market was random. (Kendall, 1953) “An 'efficient' market is defined as a market where there are large numbers of rational, profit-maximizers actively competing, with each trying to predict future market values of individual securities, and where important current information is almost freely available to all participants. In an efficient market, competition among the many intelligent participants leads to a situation where, at any point in time, actual prices of individual securities already reflect the effects of information based both on events that have already occurred and on events which, as of now, the market expects to…show more content…
As the information generally comes rapidly, securities price change randomly. (Fama, 1970) Existing conditions of the Efficient Market Fama (1970) identified three sufficient conditions of the efficient market: (1) No transactions cost when buying or selling securities (2) All available information is costlessly and available to all investors. (3) All investors are rational that accept the current prices and future prices of the securities. Three Assumptions of Efficient Capital Market There are three assumptions imply an efficient market include: an efficient market requires that a large number of profit-maximizing investors analyze and value securities, all of them are independent to the others. new information regarding securities comes to the market in a random manner and the timing of one announcement is generally independent of

More about Examples Of Efficient Market Hypothesis

Get Access