Question

a. The concept of “efficient market hypothesis” has attracted a lot of debate and controversy in modern finance. As a student of finance, what critical issues would you say you have learnt about market efficiency using capital market history as your reference point?

Answer 1

As a student of finance, Critical issue I would have learnt about market efficiency using capital market history would be as follows-

A. According to the efficient market hypothesis, all such information which are available in the public domain and which are even privately available are already discounted into the stock price.

B.Efficient market always advocates for a passive form of investment as it believes that no investor can beat the overall index rate of return

C. Efficient market hypothesis also advocate that there is no place for technical analysis and fundamental analysis in an efficient market, as they will not lead to generation of excessive return of capital.

D. According to efficient market hypothesis, there is no possibility of hedging and arbitraging in the market as the markets are already reflecting the past and present available information.

E. According to the efficient market hypothesis, only the newly available information has the power of getting a reaction through the market as those new information have not been discounted into the market.

F. Efficient market hypothesis always advocates that insider news have already been discounted, and earning price have already been discountee into the share price but post earning announcement drift is a contradiction of semi from of market.

G. According to Efficient market theory, markets are efficient and investor are rational but that is not in practical, as investors are guided by their behavioral bias.