Critical Review About Implications Of The Efficient Market Hypothesis

Seminar paper from the year 2011 in the subject Business economics - Investment and Finance, grade: 1,0, University of Hull, course: Current Issues Financial Management, language: English, abstract: The study examines and critical reviews the literature for the different implications based on the three levels of the Efficient Market Hypothesis for investors and company managers. If the weak form of the EMH holds, the technical analyse is useless, but ninety percent of traders in London are using it. If the semi-strong-form holds the fundamental analysis, study of published accounts, search for undervalued companies are useless and investors should be focus on diversification and avoiding of transaction costs. Furthermore the semi-strong form would imply for managers, that accounting disclosure to deceived shareholders is useless, the company market value is the best indicator for the company value and management decisions, the company does not need specialists for the timing of issues and there are no opportunities for a cheap acquisition of another company. At least if the strong-form of the EMH holds, it would imply that even with insider information it would not be possible to get above average returns. The literature shows, that the studies of EMH have made an important contribution to our understanding of the security market. It also shows that in some cases scientific results do not strong influence the behaviour of manager and investors in the "real world".

The Efficient Market Hypothesis (EMH) asserts that, at all times, the price of a security reflects all available information about its fundamental value. The implication of the EMH for investors is that, to the extent that speculative trading is costly, speculation must be a loser's game. Hence, under the EMH, a passive strategy is bound eventually to beat a strategy that uses active management, where active management is characterized as trading that seeks to exploit mispriced assets relative to a risk-adjusted benchmark. The EMH has been refined over the past several decades to reflect the realism of the marketplace, including costly information, transactions costs, financing, agency costs, and other real-world frictions. The most recent expressions of the EMH thus allow a role for arbitrageurs in the market who may profit from their comparative advantages. These advantages may include specialized knowledge, lower trading costs, low management fees or agency costs, and a financing structure that allows the arbitrageur to undertake trades with long verification periods. The actions of these arbitrageurs cause liquid securities markets to be generally fairly efficient with respect to information, despite some notable anomalies.

Thesis (M.A.) from the year 2004 in the subject Business economics - Investment and Finance, grade: 1 (A), University of Graz (Institute f r Industrial Economics), 99 entries in the bibliography, language: English, abstract: This Master Thesis gives an overview of the research into the efficient market hypothesis from its first days in the 1950s to the present. The discussion of theoretical models and concepts is being complemented by a review of relevant empirical evidence from international capital markets. The thesis is completed by a brief outlook on newer research venues, including models employing behavioural finance approaches.

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The Efficient Market Hypothesis believes that it is impossible for an investor to outperform the market because all available information is already built into stock prices. However, some anomalies could persist in stock markets while some other anomalies could appear, disappear and re-appear again without any warning. A Special Issue on "Efficiency and Anomalies in Stock Markets" will be devoted to advancements in the theoretical development of market efficiency and anomaly in the Stock Market, as well as applications in Stock Market efficiency and anomalies.

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