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Behavior of an Efficient Market The Efficient Market Hypothesis Implications and Limitations of the Efficient Market Hypothesis Market Efficiency Security Market Efficiency and Returns > Market Efficiency Free to share, print, make copies and changes. Get yours at ect&utm_source=boundless

The efficient-market hypothesis (EMH) asserts that financial markets are "informationally efficient. " As a result, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information available at the time the investment is made. Historically, there was a very close link between EMH and the random-walk model and then the Martingale model. The random character of stock market prices was first modelled by Jules Regnault, a French broker, in The definitions for three forms of financial market efficiency: weak, semi-strong, and strong. Behavior of an Efficient Market Free to share, print, make copies and changes. Get yours at efficient-market ?campaign_content=book_192_section_85&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boundl ess Random Walk View on Boundless.com Security Market Efficiency and Returns > Market Efficiency

In weak-form efficiency, future prices cannot be predicted by analyzing prices from the past. In semi-strong-form efficiency, it is implied that share prices adjust to publicly available new information very rapidly and in an unbiased fashion, such that no excess returns can be earned by trading on that information. In strong-form efficiency, share prices reflect all information, public and private, and no one can earn excess returns. The Efficient Market Hypothesis Free to share, print, make copies and changes. Get yours at market-hypothesis ?campaign_content=book_192_section_85&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boundl ess Efficient market response View on Boundless.com Security Market Efficiency and Returns > Market Efficiency

Empirical evidence has been mixed, but has generally not supported strong forms of the Efficient Market Hypothesis. Speculative economic bubbles are an obvious anomaly in that the market often appears to be driven by buyers operating on irrational exuberance, who take little notice of underlying value. Any anomalies pertaining to market inefficiencies are the result of a cost benefit analysis made by those willing to incur the cost of acquiring the valuable information in order to trade on it. The financial crisis of 2007–2012 has led to renewed scrutiny and criticism of the hypothesis, claiming that belief in the hypothesis caused financial leaders to adopt a "chronic underestimation of the dangers of asset bubbles breaking". Implications and Limitations of the Efficient Market Hypothesis Free to share, print, make copies and changes. Get yours at limitations-of-the-efficient-market-hypothesis ?campaign_content=book_192_section_85&campaign_term=Finance&utm_campaign=powerpoint&utm_medium=direct&utm_source=boundl ess 2008 Financial Crisis View on Boundless.com Security Market Efficiency and Returns > Market Efficiency

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Key terms efficient markets hypothesis a set of theories about what information is reflected in securities trading prices fundamental analysis An analysis of a business with the goal of financial projections in terms of income statement, financial statements and health, management and competitive advantages, and competitors and markets. information bias Information bias is a type of cognitive bias, and involves distorted evaluation of information. Information bias occurs due to people's curiosity and confusion of goals when trying to choose a course of action. insider trading Buying or selling securities of a publicly held company by a person who has privileged access to information concerning the company's financial condition or plans. Martingale model In probability theory, a martingale is a model of a fair game where knowledge of past events will never help to predict future winnings. technical analysis A stock or commodity market analysis technique which examines only market action, such as prices, trading volume, and open interest. Free to share, print, make copies and changes. Get yours at Security Market Efficiency and Returns

2008 Financial Crisis The strong form of EMH is diminished by the 2008 crisis Free to share, print, make copies and changes. Get yours at Wikipedia. "2007–2012 global financial crisis." Public domain View on Boundless.comPublic domainhttp://en.wikipedia.org/wiki/2007%25E2%2580% _global_financial_crisisView on Boundless.com Security Market Efficiency and Returns

Efficient market response The reaction of stock price to new information in efficient and inefficient markets. Free to share, print, make copies and changes. Get yours at Google. "Google Image Result for." CC BY efficient-market-hypothesis-2/&tbnid=UFtg_9CDQWWgQM&docid=boWY8n1tTk7EVM&ved=0CE4QhRYoAA&ei=fbGMUM2UIMiL0QG7yoCADQ&dur=4038 View on Boundless.comCC BY efficient-market-hypothesis-2/&tbnid=UFtg_9CDQWWgQM&docid=boWY8n1tTk7EVM&ved=0CE4QhRYoAA&ei=fbGMUM2UIMiL0QG7yoCADQ&dur=4038View on Boundless.com Security Market Efficiency and Returns

Random Walk Stock market cannot be predicted. Free to share, print, make copies and changes. Get yours at "Dave's Blog." CC BY goes-silver! View on Boundless.comCC BYhttp:// goes-silver!View on Boundless.com Security Market Efficiency and Returns

Free to share, print, make copies and changes. Get yours at Security Market Efficiency and Returns If a market is "informationally efficient," ______. A) one can predict with certainty what the market will do in the future. B) the market is "macro efficient." C) one cannot consistently achieve returns in excess of average market returns. D) All of these answers.

Free to share, print, make copies and changes. Get yours at Boundless - LO. "Boundless." CC BY-SA BY-SA 3.0http:// Security Market Efficiency and Returns If a market is "informationally efficient," ______. A) one can predict with certainty what the market will do in the future. B) the market is "macro efficient." C) one cannot consistently achieve returns in excess of average market returns. D) All of these answers.

Free to share, print, make copies and changes. Get yours at Security Market Efficiency and Returns A market's prices reflect all publicly available information and the prices instantly change to reflect new public information. This market reflects ___. A) the weak-form efficient-market hypothesis. B) the strong-form efficient-market hypothesis. C) the semi-strong-form efficient-market hypothesis. D) the semi-weak-form efficient-market hypothesis.

Free to share, print, make copies and changes. Get yours at Boundless - LO. "Boundless." CC BY-SA BY-SA 3.0http:// Security Market Efficiency and Returns A market's prices reflect all publicly available information and the prices instantly change to reflect new public information. This market reflects ___. A) the weak-form efficient-market hypothesis. B) the strong-form efficient-market hypothesis. C) the semi-strong-form efficient-market hypothesis. D) the semi-weak-form efficient-market hypothesis.

Free to share, print, make copies and changes. Get yours at Security Market Efficiency and Returns Many economists and market observers believe that the Efficient Market Hypothesis (EMH) is limited due to characteristics of the market participants. Which of the following personal traits do critics believe limit the EMH's effectiveness? A) Investors tend to overreact to both positive and negative news. B) Market participants are overconfident that the market can regulate itself. C) All of these answers. D) Investors are willing to pay significant amounts for information in order to trade on it.

Free to share, print, make copies and changes. Get yours at Boundless - LO. "Boundless." CC BY-SA BY-SA 3.0http:// Security Market Efficiency and Returns Many economists and market observers believe that the Efficient Market Hypothesis (EMH) is limited due to characteristics of the market participants. Which of the following personal traits do critics believe limit the EMH's effectiveness? A) Investors tend to overreact to both positive and negative news. B) Market participants are overconfident that the market can regulate itself. C) All of these answers. D) Investors are willing to pay significant amounts for information in order to trade on it.

Attribution Wikipedia. "Efficient-market hypothesis." CC BY-SA BY-SA 3.0http://en.wikipedia.org/wiki/Efficient-market_hypothesis Wikipedia. "Martingale model." CC BY-SA BY-SA 3.0http://en.wikipedia.org/wiki/Martingale%20model Wikipedia. "Efficient-market hypothesis." CC BY-SA BY-SA 3.0http://en.wikipedia.org/wiki/Efficient-market_hypothesis Wikipedia. "Efficient-market hypothesis." CC BY-SA BY-SA 3.0http://en.wikipedia.org/wiki/Efficient-market_hypothesis Wikipedia. "Efficient markets hypothesis." CC BY-SA BY-SA 3.0http://en.wikipedia.org/wiki/Efficient_markets_hypothesis Wikipedia. "information bias." CC BY-SA BY-SA 3.0http://en.wikipedia.org/wiki/information%20bias Wikipedia. "Efficient-market hypothesis." CC BY-SA BY-SA 3.0http://en.wikipedia.org/wiki/Efficient-market_hypothesis Wiktionary. "fundamental analysis." CC BY-SA BY-SA 3.0http://en.wiktionary.org/wiki/fundamental+analysis Wiktionary. "insider trading." CC BY-SA BY-SA 3.0http://en.wiktionary.org/wiki/insider+trading Wiktionary. "technical analysis." CC BY-SA BY-SA 3.0http://en.wiktionary.org/wiki/technical+analysis Free to share, print, make copies and changes. Get yours at Security Market Efficiency and Returns