Question

In: Finance

Explain and discuss Market Efficiency as it relates to capital markets. Why is it important?

Explain and discuss Market Efficiency as it relates to capital markets. Why is it important?

Solutions

Expert Solution

Market efficiency means that market price shows all the informatin and variables available about a market.For an investor it is not possible to predict profits because there is no different information available which is not available to anyone else. In market efficiency since profit can not be predicted any planning for investment will not succeed.

Market efficiency are of three types

Strong efficiency : All type of information is available wheather it is public or private therefore chances of profits are null.

Semi strong efficiency : All type of public information is available hence no analysis can help in make profits.But there are some chances of profits.

Weak efficiency : All past information shows current price therefore technical analysis is not helpful.

Importance

1. No investor can beat the market by adopting common strategies because information is common to all.

2.If the market is efficient it is not possible to make profits profits can only be made if market is performing inefficiently.

jeff jeffy answered 6 months ago
Next > < Previous

Related Solutions

Financial analysis adds little value given the efficiency of capital markets. Explain why you do not...
Financial analysis adds little value given the efficiency of capital markets. Explain why you do not agree with this statement.(short answer )
What is an important economic role of capital markets? Give an example of a capital market...
What is an important economic role of capital markets? Give an example of a capital market instrument and explain how it works. Who are the main participants in the capital market?
​​​​​​ Explain the difference between primary and secondary capital markets and discuss why the existence of...
​​​​​​ Explain the difference between primary and secondary capital markets and discuss why the existence of secondary markets is important. What are the reasons why debt capital in a firm typically has a lower cost of capital than does equity capital in the same firm? Will debt capital in a firm always have a lower cost of capital than equity capital in a different firm? Why or why not? Explain the difference between systematic risk and non-systematic risk and support...
What are efficiency wages and why are they important in internal labor markets? What are internal...
What are efficiency wages and why are they important in internal labor markets? What are internal labor markets and what is an important characteristic of these markets? Why do many firms base incentive pay on group performance? What is the role of the "informativeness principle" in designing a compensation package for an individual in a corporate environment? What are the factors that favor high incentive pay for an employee?
Market efficiency is an important concept in explaining the functioning of financial markets. Empirical researchers have...
Market efficiency is an important concept in explaining the functioning of financial markets. Empirical researchers have conducted tests on market efficiency using a variety of methods, including serial correlation and portfolio studies. a) Fama and French (1992, 1993) observed that two classes of stocks tended to outperform the overall market. Identify the classes of stocks Fama and French tested and briefly explain how these factors may be used to explain portfolio returns.   b) Outline how you would apply the portfolio...
1. Explain what happens to the efficiency of free markets if: a) There is market power...
1. Explain what happens to the efficiency of free markets if: a) There is market power exercised by buyers or sellers. b) There are externalities 2. What is the relationship between a change in the size of a tax, and the change in the deadweight loss of the tax? 3. What is the best predictor of whether reducing a tax in a market will increase or decrease tax revenue? Explain.
Why is Capital Budgeting Important in Corporations? Explain.
Why is Capital Budgeting Important in Corporations? Explain.
Describe capital structure and explain why it is important?
Describe capital structure and explain why it is important?
In no less than 200 words, discuss: "Intangible" elements, why are these important as it relates...
In no less than 200 words, discuss: "Intangible" elements, why are these important as it relates to the customer experience?
Explain the difference between primary and secondary markets and why secondary markets are so important to...
Explain the difference between primary and secondary markets and why secondary markets are so important to businesses that need to raise capital? Give examples from the real world?
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT