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Topic: Efficient markets theory


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In the News (Sat 10 Nov 18)

  
  What Is Efficient Market Theory?
If the market is efficient, this theory follows, it means that all of the information about the stock is revealed, leaving no possibility to buy stocks at a bargain price.
Efficient market theory has a number of dissenters, largely because it has been proven that it is possible to outperform the market.
Inefficiency, according to efficiency market theory, is a temporary state.
www.stockdogma.com /market-theory-efficient.shtml   (347 words)

  
  Efficient market theory - Wikipedia, the free encyclopedia
Efficient market theory is a field of economics which seeks to explain the workings of capital markets such as the stock market.
The theory predicts that the movements of stock prices will approximate stochastic processes, and that technical analysis and statistical forecasting will most likely be fruitless.
A central part of this theory is the Efficient market hypothesis.
en.wikipedia.org /wiki/Efficient_markets_theory   (191 words)

  
 Efficient Markets Theory - Wikipedia
To have an efficient market, it is clear that prices must be efficient too, to achieve this..
When one looks into market anomalies such as the Asian crash in the 1998 and the major World wide stock market crash in October 1987 where diverse stock exchanges such as Norway and Singapore all crashed at the same time.
Despite this conclusion that the UK stock market is at least weak form efficient, other previous studies of capital markets have found them to be semi strong-form efficient.
nostalgia.wikipedia.org /wiki/Efficient_Markets_Theory   (801 words)

  
 Encyclopedia: Efficient markets theory   (Site not responding. Last check: 2007-10-19)
Rational expectations is a theory in economics used to model the determination of expectations of future events by economic actors, originally proposed by John F. Muth (1961).
A stock market bubble is a type of economic bubble in which an exaggerated bull market where the value of stocks listed on a stock exchange rise dramatically upon a wave of public enthusiasm.
In finance, the efficient market hypothesis (EMH) asserts that stock prices are determined by a discounting process such that they equal the discounted value (present value) of expected future cash flows.
www.nationmaster.com /encyclopedia/Efficient-markets-theory   (609 words)

  
 An Interview with Eugene Fama
Efficient market theory: The theory that holds that stocks are always correctly priced since everything that is publicly known about the stock is reflected in its market price.
One extreme version of the efficient market theory says, not only is the market continually adjusting all prices to reflect new information but, for whatever reason, the expected returns—the returns investors require to hold stocks—are constant through time.
I felt that his was not the extreme version of the efficient market theory that some others adopt, but rather an open-minded attitude which says that, yes, market efficiency is there and chances are you will never do better that the markets, and as a rule, active management just doesn't pay.
www.dfaus.com /library/reprints/interview_fama_tanous   (3923 words)

  
 Efficient markets theory
Efficient markets theory is a field of economics which seeks to explain the workings of capital markets such as the stock market.
In an efficient market, the prices of stocks reflect a rational assessment of the true underlying worth of a stock.
This can be contrasted with an inefficient market in which prices might be affected by other factors such as fashion, greed, panic and stock market bubbles.
www.ebroadcast.com.au /lookup/encyclopedia/ef/Efficient_markets_theory.html   (99 words)

  
 Knowledge King - Efficient markets theory   (Site not responding. Last check: 2007-10-19)
According to the theory of efficient markets, in an efficient market the prices of stocks will reflect a rational assessment of the true underlying worth of stocks; the prices will have fully and accurately discounted (taken account of) all available information (news).
Since the theory assumes that news arises randomly in the future (otherwise the non-randomness would be analysed,forecast and incorporated within prices already), then the theory predicts that stock prices will approximate to a Brownian motion pattern of price movement and that technical analysis (and statistical forecasting) are likely to be fruitless.
This efficient process of price determination can be contrasted with an inefficient market in which, according to the theory, the pre-conditions for efficient pricing (perfect information, many small market participants) have not been met and prices may be determined by factors such as insider trading, institutional buying power, mis-information, panic and stock market bubbles.
www.knowledgeking.net /encyclopedia/e/ef/efficient_markets_theory.html   (223 words)

  
 Articles on how efficient the stock market is
Market enthusiasts have responded by pointing to the efficient markets theory, which holds that the market is far better equipped to assess the prospects of American companies than any pundit.
Josef Lakonishok is a market behaviorist, one of the best-known of the breed.
But efficient-markets theory has a dirty little secret, too, which is that for the market to remain efficient, there have to be lots of rational investors who believe enough in the market's inefficiency to spend their careers trying to beat it.
bear.cba.ufl.edu /karceski/FIN7447/wsj/efficiency.html   (7568 words)

  
 [No title]
Although the theory of efficient securities markets generally holds true, there are certain cases where the behaviour of securities cannot be explained by efficient market theory.
Following the theory of efficient markets, the expected price calculated using the CAPM is an average of the expectations of all investors.
Prospect theory, post-announcement drift, and the market response to accruals are just three of the areas that efficient markets theory cannot rationalize.
www.umanitoba.ca /faculties/management/acctfin/courses/9.403/group44.doc   (1693 words)

  
 Efficient markets theory -- Facts, Info, and Encyclopedia article   (Site not responding. Last check: 2007-10-19)
Efficient markets theory is a field of (The branch of social science that deals with the production and distribution and consumption of goods and services and their management) economics which seeks to explain the workings of (Click link for more info and facts about capital market) capital markets such as the stock market.
The theory predicts that the movements of stock prices will approximate (Click link for more info and facts about stochastic processes) stochastic processes, and that technical analysis and statistical forecasting will most likely be fruitless.
A central part of this theory is the (Click link for more info and facts about Efficient market hypothesis) Efficient market hypothesis, which has been debunked by many pratitioners.
www.absoluteastronomy.com /encyclopedia/E/Ef/Efficient_Markets_Theory.htm   (263 words)

  
 An Interview with Eugene Fama
Efficient market theory: The theory that holds that stocks are always correctly priced since everything that is publicly known about the stock is reflected in its market price.
One extreme version of the efficient market theory says, not only is the market continually adjusting all prices to reflect new information but, for whatever reason, the expected returns—the returns investors require to hold stocks—are constant through time.
I felt that his was not the extreme version of the efficient market theory that some others adopt, but rather an open-minded attitude which says that, yes, market efficiency is there and chances are you will never do better that the markets, and as a rule, active management just doesn't pay.
library.dfaus.com /reprints/interview_fama_tanous   (3922 words)

  
 Economics Interactive -- Financial Markets Notes   (Site not responding. Last check: 2007-10-19)
New version of this old theory: 1987 stock market crash was a result of program trading (locking in a sell price in the computer to ensure a profit).
Efficient markets theory has been interpreted as predicting that margin requirements have no effect on the stock market.
Keynesian theory is inconsistent with the flavor of efficient markets theory, as are the emerging fields of behavioral economics and behavioral finance.
www.unc.edu /depts/econ/byrns_web/EC185/ClassNotes/EC185_S04_notes/Feb11notes.htm   (1171 words)

  
 Chapter 27: Theory of Rational Expectations and Efficient Capital Markets
A strong version of the efficient markets theory states that security prices are always a correct reflection of the market fundamentals.
One key implication of the efficients markets theory is that over time it will be almost impossible to "beat the market." This means that we should not see any one group or person earning returns in the stock market that are consistently above average stock returns (the market return).
On October 19, 1987, the stock market plunged with what was, at the time, the largest one-day point loss in history for the Dow Jones Industrial Average (over 500 points, or 20% of the index value).
www.oswego.edu /~edunne/340chapter27.html   (1780 words)

  
 Efficient Markets Hypothesis
The EMH assumes that markets consist of many rational, homogenous, autonomous traders and states that you cannot beat the market.
Grossman (1976) and Grossman and Stiglitz (1980) argue that perfectly informationally efficient markets are an impossibility, for if markets are perfectly efficient, the return to gathering information is nil, in which case there would be little reason to trade and markets would eventually collapse.
Alternatively, the degree of market inefficiency determines the effort investors are willing to expend to gather and trade on information, hence a non-degenerate market equilibrium will arise only when there are sufficient profit opportunities, i.e., inefficiencies, to compensate investors for the costs of trading and information-gathering.
www.e-m-h.org   (993 words)

  
 Indexfunds.com - Articles
If markets are efficient, then financial engineering, changing the method of depreciation or merger accounting etc for example, should have a strong potential for increasing value.
If markets were efficient then managers need not worry about short-term or long-term focus, they should just Rau: Now, when looking at the Internet, this has the potential to completely shake up the market for retailing, distribution and other areas.
The dot com paper evidence is evidence against market efficiency, but again we cannot conclusively say that markets are inefficient on the basis of these results.
www.indexfunds.com /archives/articles/mcclatchy_will_1999_an_interview_with_professor_p_raghavendra_rau.php   (678 words)

  
 Investor Home - The Efficient Market Hypothesis
If a market is efficient, no information or analysis can be expected to result in outperformance of an appropriate benchmark.
In an efficient market, competition among the many intelligent participants leads to a situation where, at any point in time, actual prices of individual securities already reflect the effects of information based both on events that have already occurred and on events which, as of now, the market expects to take place in the future.
In effect, efficient markets depend on market participants who believe the market is inefficient and trade securities in an attempt to outperform the market.
www.investorhome.com /emh.htm   (1859 words)

  
 EMT Goes Down the Rabbit Hole
The theory holds that it is not that the experts are incompetent, but that they are so efficient in factoring in all these things, that the market always reflects their diligence and judgment regarding the implications of all market information that is known.
Efficient Markets Theory is unable to explain a large number of stock market anomalies that persist for relatively long periods of time such as Dogs of the Dow, the January Effect and the long term speculation that has resulted in excess market returns since 1982.
The experts would be unemployed if their marketing campaigns were not effective in making investors believe that "expertise" is indispensable and that the only way to beat the market is via the help of learned advisors.
www.indexrx.com /Articles/rabbithole.htm   (883 words)

  
 Print Message
“Efficient Capital Markets” argues that on average, it is nearly impossible for an individual to consistently beat the stock market as a whole because of the broad availability of public information.
A common analogy of efficient markets theory is that an investor who throws darts at a newspaper’s stock listings has as much a chance at beating the market as any professional investor.
The theory of efficient markets has to be looked at on a context of a model of market equilibrium that tells you what prices should look like.
www.suite101.com /print_message.cfm/investing/60843/459124   (2992 words)

  
 The Fribble: The Modified Efficient Markets Theory, by MF Cormend
Markets may not be perfectly efficient, but they're more efficient than I am.
The Modified Efficient Markets Theory is especially valid when considering the largest, most highly capitalized stocks, those companies in which more is known by more people than just about any other.
The Modified Efficient Markets Theory would say yes, probably 95% of all investors would not be able to ascertain if GM is overvalued or will outperform the SandP 500 over the course of a year.
www.fool.com /Fribble/1996/Fribble960916.htm   (707 words)

  
 [No title]   (Site not responding. Last check: 2007-10-19)
Risky Bets The efficient markets theory holds that the trading by investors in a free and competitive market drives security prices to their true "fundamental" values.
As the great financial economist Fischer Black once wrote humorously, the market is "efficient" when security prices are within a factor of two from value.
Yet to keep the government away from markets, we do not need to proclaim that "markets know best." The weaker but more accurate proposition, that the market knows better than the government, is more than sufficient.
faculty.washington.edu /shevlin/515/efficientmarkets.doc   (2845 words)

  
 SSRN-Market Efficiency, Long-Term Returns, and Behavioral Finance by Eugene Fama
Market efficiency survives the challenge from the literature on long-term return anomalies.
Consistent with the market efficiency hypothesis that the anomalies are chance results, apparent over-reaction to information is about as common as under-reaction.
Consistent with the market efficiency prediction that apparent anomalies can also be due to methodology, the anomalies are sensitive to the techniques used to measure them, and many disappear with reasonable changes in technique.
papers.ssrn.com /sol3/papers.cfm?abstract_id=15108   (220 words)

  
 THE EFFICIENT MARKET HYPOTHESIS ON TRIAL
If the evidence is against market efficiency, it may be because the market is inefficient, or it may be that the model is incorrect.
If the market were efficient, one would expect the prices of stocks of these companies to go up to a level where the risk adjusted returns to future investors would be normal.
While expected utility theory would predict that individuals would evaluate alternatives in terms of the impact on these alternatives on their final wealth position, it is often found that individuals tend to violate expected utility theory predictions by evaluating the situation in terms of gains and losses relative to some reference point.
www.westga.edu /~bquest/2002/market.htm   (8253 words)

  
 Financial Concepts: Efficient Market Hypothesis
Efficient market hypothesis (EMH) is an idea partly developed in the 1960s by Eugene Fama.
If markets are efficient and current, it means that prices always reflect all information, so there's no way you'll ever be able to buy a stock at a bargain price.
Their argument against the efficient market theory is that many investors base their expectations on past prices, past earnings, track records and other indicators.
www.investopedia.com /university/concepts/concepts6.asp   (313 words)

  
 Canadian ETF, Mutual Fund, and RRSP Advice - EfficientMarket.ca - RRSP News and Information
According to modern financial theory capital is allocated efficiently to global markets overall.
The overall maximally efficient RRSP portfolio would be to hold a global portfolio of equities roughly in proportion to global market capitalization.
Efficient Market Canada strongly recommends that you increase the US dollar investments in your RRSP and take advantage of the Exchange Traded Funds available on the US stock market.
www.efficientmarket.ca   (2938 words)

  
 eastsidejournal.com - Coffeehouse Investor: What the investment 'experts' are not going to tell you   (Site not responding. Last check: 2007-10-19)
The Efficient Markets Theory has never stated that it is impossible to beat a benchmark, as a select few portfolio managers have proven.
From the Efficient Markets Theory was borne the index fund, an unmanaged mutual fund that invests an all the securities that make up a particular index, such as the SandP 500 index representing large company stocks, or the Russell 2000 Index representing small company stocks.
When security analysis is removed in favor of efficient markets within the context of an adviser/client relationship, not only do you maximize your portfolio returns potential, but more importantly, it frees you up to focus on the most important investment issue of all -- and next week's topic of discussion.
www.kingcountyjournal.com /sited/story/html/53620   (889 words)

  
 Car Insurance - Why Markets Will Lead To Lower Premiums
Studies note that companies covering about thirty per cent of the personal car insurance market do now make a distinction between smaller and bigger vehicles.
Governments would be forced to hide the real, (high) cost of premiums by subsidizing the state insurer from tax dollars, (including those from non-drivers) or let the state insurer do a cheaper, careless repair job which would drive away consumers with other choices.
Ultimately, it is the market, not government, which will find an efficient solution that is most reasonable to consumers
www.carinsurance.vc /markets.html   (346 words)

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