Question

Explain the relationship (If any) between the EMH, the asymmetric view, and the CAPM.

Answer 1

Asymmetric view states that the investors in a market do not have the same kind of information. Some of them may have more information while others may have less information. The asymmetry in information will lead to a person having more information and another person having less information in the market. This will lead to a person making more profit and the others losing out on the opportunity to make profits.

EMH, CAPM and asymmetric view are not so related to each other. The three theories are about the markets and the financial performance but they present different perspectives. The asymmetry view concentrates on the fact that not all the players in the market will have the same information leading to some people benifitting more than the others. Efficient Market Hypothesis on the other hand, states that the same information is available to all investors. CAPM deals with the expected rate of return that the investor should earn on the investment in an asset. So, there is difference among the three.