If stock markets are fully efficient, then investment analysis is a waste of time and money."...

If stock markets are fully efficient, then investment analysis is a waste of time and money."

Critically access this statement.

Expert Solution

The statement mentioned is absolutely valid and correct.

The Efficent Market Hypothesis states that it is impossible to earn supernormal profits in the Market or it is not possible to beat the Market because the Stock Market Efficiency always causes the existing share prices to reflect all the available information.

An Efficient Market is one where there are a large number of active rational investors (all of whom wants to maximize their personal gain) and are carrying out their research work independently and are well-informed about the Risk and Return of various securities, hence the current prevailing stock prices reflects the impact of all the current available information.

Under such type of fully efficient market, No technical analysis, No public information and No insider information can help to beat the market because the prevailing stock prices already reflects such information and all such information has already been incorporated into the market.

Hence, it is very true to say that in Fully Efficient Market, the investment analysis is totally waste of time and money.

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