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‘‘Should we consider the Stock Market an efficient market.’’
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Financial & Monetary Economics Coursework: ''Should we consider the Stock Market an efficient market.'' In theory the Stock Market is said to be efficient as stock prices should follow a random walk, which, means that stock price changes should be random and unpredictable, If stock prices were predictable then this would prove that the stock market is inefficient as this implies that all available information was not already impounded in stock prices. Hence the notion that stock prices reflect all available information is known as the efficient market hypothesis (EMH). It was Professor Eugene Fama who created the term EMH, in his paper 'Efficient Capital Markets' and claimed that in efficient markets prices reflect all available information. There are three versions of the EMH, and each of these versions has a different implication for investment management. The weak form of the EMT: Suggests that all past market prices and data are fully reflected in...
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