The Efficient Market Hypothesis (Emh) Has Been Subject

1863 WordsMay 10, 20178 Pages
The efficient market hypothesis (EMH) has been subject to professional and academic debate and analysis for many years, and refers to the theory proposing that stock prices show all information regarding a firm’s value. An efficient market is a market in which investors with the same information and similar investment goals compete actively (Sewell, 2012). Many private investors and investors aiming to make profits are involved with the stock market and often make low risk investments while aiming for high rates of return. However, the efficient market hypothesis states that it is impossible to consistently outperform the stock market as the market is able to quickly adjust to new information. The Efficient Market Hypothesis also addresses…show more content…
The semi-strong form of market efficiency argues that an individual should not be in a position to benefit by utilizing public information. (Potocki and Swist, 2012). Market analysts and financial economists should have the ability to understand the financial information and how it affects the stock market prices. The Validity of the Semi-Strong Form of the Efficient Market Hypothesis Many researchers have tested the validity of the semi-strong form of the Efficient Market Hypothesis through testing major announcement event such as dividend announcements and bonus issue announcements. (Khan and Ikram, 2010), This is because the announcements may offer desirable factors to the market which will influence stock prices. Observing the performance of mutual funds and brokerage companies is the second aspect for evaluating the semi-strong form of market efficiency (Khan and Ikram,2010). This is because brokers and fund managers are believed to have access to non public information that gives them an advantage when trading on the stock market. Review of Previously Conducted Studies A previous study on the validity of the semi-strong form demonstrated that the live-log market consistently fails to perform (Raymond & Peter, 1979), and the results concluded that the live-log market was flawed
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