Question

Do you agree or disagree with the content and give an example of efficient market hypothesis when it is weak.

The efficient market hypothesis originated from a dissertation written by Eugene Fama who was studying for his PhD. It states, in short, “that at any given time and in a liquid market, security prices fully reflect all available information.” This theory has three main levels of strength: weak, semi-strong, and strong. These levels focus on the “inclusion of non-public information in market prices”. The hypothesis’ three levels can be explained as follows: the weak form proposes that past pricing and volume information do not have any relationship with any potential future trends. The semi-strong level suggests current stock prices will adjust quickly to “the release of all new public information”. Last the strong level presumes “current stock prices fully reflect all public and private information.” The efficient market hypothesis aligns the likelihood of the market’s response with the release of information, or lack thereof. It may contribute to the prediction of strong financial decisions, but ultimately that responsibility should rest with the financial documents.

Financial statement analysis, which is the “process of reviewing and evaluating a company’s financial statements” (Financial Statement Analysis, n.d.), is the only true way of deciding what will be best for an investor. While the efficient market hypothesis can be a tool used for some investing decisions it does not provide any concrete evidence of the best choice. Financial Statements and other documents do. First, any and all public information can yield a strong indication of where a company is heading. Here an investor would be able to see the hard facts and figures as opposed to guessing where they should invest their funds. If I were investing I would be less interested in a hypothesis and more interested in the overall performance of a company. There the income statement, balance sheet, and statement of cash flows would be my preferred references. It may take more time, but ultimately the results will be stronger than relying on a volatile stock market.

Answer 1

I agree with the context.

Effective Market Hypothesis: Strong, Semi-Strong, and Weak :

Example

Prashant is a dealer working at the Punjab Stock Exchange. He has built up a current enthusiasm for speculations and has no related knowledge. He watched that the cost of Mohali Sports Equipment drops on Monday and ascends on Friday. On 7 January 2013, he obtained 100 offers of MSE's stock for 11 INR for each offer. He was very disheartened to see that the cost was 10.5 INR for each offer on Friday, 11 January 2013.

The market is by all accounts frail frame proficient, in light of the fact that it isn't giving Prashant a chance to gain abundance return by simply picking stocks in view of some

If I somehow happened to pick one thing from the scholarly universe of back that I think more individual financial specialists need to think about, it would be the proficient market speculation.

The name "proficient market theory" sounds appallingly arcane. Yet, its essentialness is enormous for speculators, and (at a fundamental level) it's not hard to get it.

So what is the proficient market speculation (EMH)?

As educator Eugene Fama (the man regularly credited as the father of EMH) explains*, in an effective market, "the present cost [of an investment] ought to mirror all accessible data… so costs should change just in light of surprising new data."

It's critical to take note of that, as Fama himself has stated, the proficient market theory is a model, not a run the show. It portrays how showcases tend to function. It doesn't manage how they should function.

EMH is regularly separated into three structures (powerless, semi-solid, and solid) each with their own ramifications and differing levels of information to back them up.

Powerless Efficient Market Hypothesis

The powerless type of EMH says that you can't foresee future stock costs based on past stock costs. Powerless shape EMH is a shot pointed straightforwardly at specialized examination. On the off chance that past stock costs don't foresee future costs, there's no reason for taking a gander at them — no reason for attempting to observe designs in stock diagrams.

From what I've seen, most scholastic examinations appear to demonstrate that powerless shape EMH holds up entirely well. (Take, for instance, the current examination which tried more than 5,000 specialized investigation administers and indicated them to be unsuccessful at producing unusually exceptional yields.)

Semi-Strong Efficient Market Hypothesis

The semi-solid type of EMH says that you can't utilize any distributed data to anticipate future costs. Semi-solid EMH is a shot went for key examination. In the event that all distributed data is as of now reflected in a stock's value, at that point there's not something to be picked up from taking a gander at money related proclamations or from paying some person (i.e., a reserve chief) to do that for you.

Semi-solid EMH has additionally held up sensibly well. For instance, the quantity of dynamic store directors who outflank the market has truly been close to can be effortlessly credited to unadulterated arbitrariness.

Semi-solid EMH does not seem, by all accounts, to be ironclad, in any case, as there have been a little modest bunch of speculators (e.g., Peter Lynch, Warren Buffet) whose outperformance is of an adequate degree that it's greatly hard to clarify as just good fortune.

The trap, obviously, is that it's about difficult to recognize such a financial specialist so as to benefit from it. You should either:

Contribute with a reserve administrator after just a couple of years of outperformance (and soon thereafter his/her execution could without much of a stretch be because of good fortune), or

Hold up until the point that the director has sufficiently given information so you can make certain that his execution is because of aptitude (and soon thereafter his store will be adequately vast that he'll experience difficulty outflanking later on).

Solid Efficient Market Hypothesis

The solid type of EMH says that everything that is comprehensible — even unpublished data — has just been reflected in show costs. The suggestion here would be that regardless of whether you have some inside data and could lawfully exchange in view of it, you would pick up nothing thusly.

The way I see it, solid frame EMH isn't horribly applicable to most individual financial specialists, as it's not very frequently that we have data not accessible to the institutional speculators.

Why You Should Care About EMH

Given how much they've held up, the ramifications of frail and semi-solid EMH can't be exaggerated. To put it plainly, the takeaway is that there's almost no proof demonstrating that individual speculators can show improvement over essentially purchase and hold an ease, expanded portfolio.