Question

Question #

Based on assumptions of ‘efficient investment market’, and its three different forms, write a short note on “how an efficient investment market is helpful for the ‘general investors’? (Minimum 200 words)

Answer 1

An efficient market focuses on fair price mechanism which helps an investor to just copy the index and make the maximum return.

Efficient market hypothesis is aimed at advocation of a theory that said that the share price reflect all public as well as privately available information, and there is is no scope for any fundamental as well as technical analysis to make extra ordinary rate of return in the market

So the best strategy for investors is to focus on the passive investment strategy by investing into the index fund that will help the investor to make the maximum return as there is no room for any kind of analysis to make extraordinary return in the market.

so an efficient market is helpful for the investors because all private information are already discounted so there are no scope for fraud left and since there are no scope for technical analysis there would not be much difference between an analyst and a layman.There are no scope for any insider trading in an efficient market as well.

An investor in efficient market is not exposed to any kind of risks in price.As it is always reflecting the truest value and he would not be cheated by any malpractices and there are no hedging and arbitraging required so that would save a lot of there would be no requirement of fundamental analyst as well as technical analyst so that would also save a lot of cost.There would be no requirement of fundamental analyst as well as technical analyst so that would also save a lot of cost for the investors.