Efficient Markets Hypothesis
What is your opinion of the Efficient Market Hypothesis? When it comes to the valuation of a particular stock do you think that all information regarding the company is in the public domain? What brought you to your opinions?
The Efficient Markets Hypothesis (EMH) according to Brigham and Ehrhardt (2011) “asserts that (1) stocks are always in equilibrium and (2) it is impossible for an investor to “beat the market” and consistently earn a higher rate of return than is justified by the stock’s risk” (p.290). Based on company valuations in regard to its stock this is a market hypothesis; EMH asserts that markets are totally responsive to information and are driven by it. Its proponents argue that having -at the present- the right information may help one tell the actual value in the future of the firm’s stock, they hold that the existing price of a company’s stock, bond, or property price regarding that particular company is an indication of the comprehensive accessible information, any information change immediately changes the share value and it is at that point that it represents again as available the new information (Brown, 2011). Regarding this theory the other strong held believe is that it is almost impossible - if the information regarding certain stocks we hold at the moment is the same information available to the market - to exceed the market forces. Since is the recipient of all the information available the overall winner of the EMH is the market, therefore any individual trying to outdo the market at any given time may be wrong in doing so however the market as it has all information will never be wrong. In three forms EMH is founded which result to dissimilar outcomes: these are strong, semi and weak form efficiency (Brigham and Ehrhardt, 2011, p.). Mostly EMH has been utilized to forecast for companies in the market stock prices, as most market players seem to only release that information which they find adequate this though has not
The Efficient Markets Hypothesis (EMH) according to Brigham and Ehrhardt (2011) “asserts that (1) stocks are always in equilibrium and (2) it is impossible for an investor to “beat the market” and consistently earn a higher rate of return than is justified by the stock’s risk” (p.290). Based on company valuations in regard to its stock this is a market hypothesis; EMH asserts that markets are totally responsive to information and are driven by it. Its proponents argue that having -at the present- the right information may help one tell the actual value in the future of the firm’s stock, they hold that the existing price of a company’s stock, bond, or property price regarding that particular company is an indication of the comprehensive accessible information, any information change immediately changes the share value and it is at that point that it represents again as available the new information (Brown, 2011). Regarding this theory the other strong held believe is that it is almost impossible - if the information regarding certain stocks we hold at the moment is the same information available to the market - to exceed the market forces. Since is the recipient of all the information available the overall winner of the EMH is the market, therefore any individual trying to outdo the market at any given time may be wrong in doing so however the market as it has all information will never be wrong. In three forms EMH is founded which result to dissimilar outcomes: these are strong, semi and weak form efficiency (Brigham and Ehrhardt, 2011, p.). Mostly EMH has been utilized to forecast for companies in the market stock prices, as most market players seem to only release that information which they find adequate this though has not
References: Warren, C. S. (2011). Survey of Accounting. (5th Edition) South – Western, Cengage Learning. Lee, C.A, Lee C. J. & Lee, F. C. (2009) “Financial Analysis, Planning and Forecasting. Theory and Application. Second Edition. World Scientific Co. Pte. Ltd. Copyrighted material.