What is an efficient Capital Market?
Market efficiency is an overly academic concept that bears no connection to reality. It is an important topic because it gives professors something to write about, and may allow them to get tenure if they come up with a good theory. For my first exhibit against market efficiency, I would like to present the idea of "perfect knowledge," or the assumption that all investors know everything about what they are investing in. This idea is patently false, I know plenty of people who have little to no clue about the financial health of their stocks, and even experts tend to overlook things. I have been guilty of that too - you can't make people omniscient though, and therefore one underlying assumption for market efficiency is false. Next, consider rationality. Market efficiency assumes all participants are completely rational actors. Research shows that investors - especially individuals - often act completely counter to their best interests, selling when they should be buying and buying when they should be selling. See: Nasdaq, H1, 2000. I have a feeling this will be a never ending debate, but if you want to have fun and don't care about your grade, raise some of these points in class. Good luck.
Semi-strong efficiency?
Yes, because a semi-strong efficient market reflects all past and current public information. Past prices are in the public domain so in a weak form efficient market, knowledge of past prices would be useless in forecasting future prices.
Semi strong form efficient market?
very much twisted question - excellent way of confusing. - congrats for smartness Company does not get affected at all. They have divided the share capital (paid-up) in to equity and floated the share (stock) in public (by way of IPOs in primary market) thereafter the stocks are traded in secondary market - that is an another story - the day-to-day fluctuations shall not affect the corporates/company.
How is the strong form of efficient market hypothesis validated?
I’ll take a stab at it from memory and say, the theory is validated if study after study shows that the market is always and everywhere random, demonstrating that market prices reflect all available information. And indeed, economist Eugene Fama produced very compelling data to support his theory.Years on, it is generally accepted that the theory, while valid and useful in many and various market conditions (hello, index-based mutual funds), has in the past failed to explain certain unexpected deviations.The theory is not strong. But it’s damn good, and Fama’s research had and continues to have a tremendous impact on the behavior of investors to this day.
Can the stock market of the world achieve a strong form of efficient market hypothesis?
If the “efficient market hypothesis” was true we would never have bubbles, or bubbles bursting. As Keynes noted, “Markets can remain irrational longer than you can remain solvent.” But we do get bubbles occasionally, demonstrating that the efficient market hypothesis simply isn’t reality. It’s a great place to play “what if,” but in reality, someone playing it with real money would simply go bust every time. In point of fact, one of the most spectacular acts of going bust was the “Long Term Capital Management” hedge fund, led by a couple of Nobel Prize winning economists who spectacularly went bust trying to follow the tenets of the Chicago School of Economics theories.
Efficient Market Hypothesis (EMH)?
The efficient market hypothesis basically states that markets are efficient, meaning all investors react at the same time and the same way to the information that is available to everyone. In other words, all information is already discounted in the price of securities and there is no real way to exploit undervalued securities. However, there are three different levels: weak form EMH, semi-strong EMH, and strong EMH. An example would be the release of an earnings report that missed expectations. This would result in the market pushing the share price down (most of the time, depending on the actual results). It says that the market would push the price down just right so that there will be no opportunity for investors to exploit any irrationality or over-reaction by the market.