Question

In: Finance

Describe the efficient market theory. In your opinion, are the markets efficient? If so, what form...

Describe the efficient market theory. In your opinion, are the markets efficient? If so, what form of efficiency is present in financial markets?

Solutions

Expert Solution

According to the efficient market theory, efficients markets are markets which completely and efficiently reflect all the available information in the market. No investors can earn above normal returns in efficient markets as all the available information is already reflected in the stock price.

markets are not completely efficient , investors earn above normal rate of returns.

the different forms of efficient markets are

a. weak form where the stock prices reflect all the past information.

b. semi strong form of market efficiency: where the stock prices reflect all the information that is publicly available.

c. strong form: where the stock prices reflect all the hidden information.

the financial markets are not always efficient, but semi strong form of market efficiency is present in markets.

semi -strong form of market efficiency exists in the markets, where any new information about a stock is immediately reflected in the stock prices without any bias.


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