2006-09-17 05:59:00 · 4 answers · asked by ALEXANDER A 1 in Business & Finance ➔ Other - Business & Finance
"Efficient capital markets are commonly thought of as markets in which security prices fully reflect all relevant information that is available about the fundamental value of the securities."
2006-09-17 06:11:17 · answer #1 · answered by monkey 5 · 1⤊ 0⤋
Lo & MacKinley relate a story in their book (A NONRANDOM WALK DOWN WALL STREET) about an efficient market theorist who is walking down the stret with a friend. The friend sees a $100 bill and stoops to pick it up. The economist tells him "Don't bother -- it it were a real hundred dollar bill, someone would have already picked it up."
There are three forms of efficient capital markets.
1. Strong form: All information is reflected in asset prices.
2. Semi-Strong form: All public information is reflected in asset prices.
3. Weak-form: Information from historical prices is reflected in asset prices.
The significance of these ideas is that stock prices should change randomly -- because information arrival is random and so are liquidity needs.
It is generally agrees that the strong form does not hold in the real world, that the weak form and the semi-strong forms are decent approximations.
The fact is that there are frictions in the marketplace. Some frictions are caused because there is a cost to assimilating public information, because there are trading costs, because there is a tendency by many to avoid short-selling, etc.
Academic studies have shown that most information gets into the marketplace pretty quickly. Some information -- particularly bad information about firms tha don't have analyst coverage -- gets into the marketplace more slowly.
As for other frictions, institutions have a trading advantage over individuals in both cost and information, so are better able to take advantages of temporary mispricings.
2006-09-17 06:27:01 · answer #2 · answered by Ranto 7 · 0⤊ 0⤋
PLEASE note the question is wrong!
The system is NOT efficient because despite abundant wealth millions are hungry, have no health-care and are without shelter. There is no balance.
The system is not working because it only makes room for profitable endeavours in $ terms. It does not consider health, education or a clean environment a good use of resources, which means companies do not engage in these activities
2006-09-17 06:06:12 · answer #3 · answered by Anonymous · 0⤊ 1⤋
go invest money in pamper factory pamper are gonna be low on market so ti think it is best time to invest coz the growth rate in increasing by 34% by this year
2006-09-17 06:30:00 · answer #4 · answered by Shazia Sahani 2 · 0⤊ 0⤋