The Basic Function Of The Securities Market

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Weak-form efficiency

Market efficiency refers to the degree to which stock prices reflect information that affects price changes. The basic function of the securities market is the effective allocation of capital resources to promote the healthy and rapid economic development. The higher the effectiveness of the market, the more rational allocation of funds. Stock prices reflect information faster and more comprehensive, the securities market will be more efficiency. According to the reflection of stock prices to different information, it is possible to divided the efficiency of securities market into three levels, namely, weak-form efficiency, semi-strong-form efficiency and strong-form efficiency. The well-run stock market generally
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With the penetration of the research on the securities market, scholars have found many “abnormal phenomenon”, which is contrary to the Efficient Market Hypothesis(EMH) proposed by Eugene Fama, a professor of Finance at the university of Chicago Booth School of Business. The hypothesis was based on the efficient markets model after the proof of theoretical and empirical literature. Fama argued that stock prices has fully reflected all available information (mainly historical information about price changes, such as the previous stock price) in the efficient market and new information is unpredictable which makes the stock price changes follow a random walk. However, in weak-form efficiency market, investors can not rely on the analysis of the trend of historical changes of stock price to get the so-called law of change in the stock price and consistently obtain excess profits by it. If the weak-form Efficient Market Hypothesis is set up, the technical analysis of the share price become unhelpful anymore, and the basic analysis may also help the investors to gain extra profits. Numerous experimental tests on weak-form efficiency market hypothesis show that the market is basically inefficient after deducting trading costs. For
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