Question

Role of Efficient Market Hypothesis in value maximisation?

Answer 1

Efficient market hypothesis advocates that all the past as well as the present information have already been incorporated into the price and there are no scope for beating the market return.

there are various kind of Efficient market which helps us to understand the relationship between various kind of information and analysis in regards with overall share price.

Efficient market hypothesis always believes that all the share prices completely reflect their true value, as all the private and public Information have been incorporated into the price and there are no amount of fundamental analysis and technical technical analysis that are going to beat the index rate of return, because they are just too much of risk taking for exploiting the return of the market but in the long run, they are not beneficial as one can see through the past performance of actively managed Mutual funds which have underperformed the passively managed mutual funds to a very high extent.

Efficient market hypothesis is highly related to the value maximization as it believes that an investor who follows just the passive investment strategy by investing into the index fund and following the index will make the market rate of return and will never be beaten by the investor who is actively managing his portfolio.