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Essay / Research Paper Abstract
A 12 page paper examining the efficient market hypothesis and market anomalies in order to determine how investors can maximize their returns. Warren Buffett believes that markets are not efficient at all, that it is possible to find and exploit undervalued stocks and so maximize investment return on those stocks. The efficient market hypothesis (EMH), however, holds that stock prices occupy the levels they do because all possible information is known about them and that information has brought them to the price level where they are. There are proponents of the efficient market hypothesis; there are those who, like Warren Buffett, roundly reject it. Bibliography lists 28 sources.
Page Count:
12 pages (~225 words per page)
File: CC6_KSeconEffMktHyp.rtf
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Unformatted sample text from the term paper:
Russel and Torbey (2002) quote Warren Buffett as saying, "Id be a bum in the street with a tin cup if the markets were efficient." Clearly, Warren Buffett
believes that markets are not efficient at all, that it is possible to find and exploit undervalued stocks and so maximize investment return on those stocks. The efficient market
hypothesis (EMH), however, holds that stock prices occupy the levels they do because all possible information is known about them and that information has brought them to the price level
where they are. There are proponents of the efficient market hypothesis; there are those who, like Warren Buffett, roundly reject it. The purpose here is to examine the
efficient market hypothesis and market anomalies in order to determine how investors can maximize their returns. 1. The Efficient Market Heakal (2002) reviews investors
motivations for placing their capital with some publicly-traded company offering partial ownership of the company in the form of shares. The investor does not merely lend capital to the
company chosen, s/he believes s/he will be "generating a return on the capital invested. Many investors try not only to make a profitable return but also to outperform, or beat,
the market" (Heakal, 2002). Fama (n.d.) described market efficiency in 1970, formulating the efficient market hypothesis at that time. Market efficiency suggests that ...at any given time
prices fully reflect all available information on a particular stock and/or market. Thus, according to the EMH, no investor has an advantage in predicting a return on a stock price
since no one has access to information not already available to everyone else (Heakal, 2002). Thus, the theory of the EMH states "it
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