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Essay / Research Paper Abstract
This 14 page paper looks at the theories concerning the performance of behavior of the stock markets in order to determine whether or not the stock market could be deemed efficient. Fama’s efficient market hypothesis is explained and examined and alternative approaches which consider the market to have a degree of efficiency are considered, compared and assessed before a conclusion is reached. The bibliography cites 19 sources.
Page Count:
14 pages (~225 words per page)
File: TS14_TEstockEMH.rtf
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Unformatted sample text from the term paper:
has attracted a great deal of attention in order to create models that seek to assess how and why share prices move and to predict the way that share prices
may move. These approaches are often based on the idea that there will be some degree of rational or logical behaviour, however, if there were a singular definitive model that
could be used to explain the way share prices moved then it would be likely that the majority of investors would use the model and that either those who utilized
the model would be making regular abnormal return or as the model became common knowledge and was more widely used the potential for abnormal returns would be eliminated (Howells and
Bain, 2007). The evidence does not support the idea that there are investment managers that are able to produce consistent above average returns (Elton et al, 2002; Grubel, 1979).
The search for a model to explain share price movements is based on the concept that the markets act in a rational manner, that there is a form of efficiency
within the market. If markets are efficient and shares always have the right price (Grossman and Stiglitz, 1980), but despite the lack of evidence for investment managers and investors gaining
consistent above average profits, there is evidence that abnormal returns are still possible at times within the markets, which may indicate a lack of efficiency. In order to assess whether
the stock markets may be seen as an efficient market the underlying theories can be considered. 2. Literature Review 2.1 Definition of an Efficient Market There are different ways
of considering what is meant by the term efficient market. A simple but constrained definition may be that an efficient market is a rational market (Statman, 2010). Inherent in this
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