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

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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 1 month ago

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