What is efficient market hypothesis - rectoria.unal.edu.co

what is efficient market hypothesis.

State and explain three types of efficient market hypothesis. Answers a Allocative Efficiency A market is allocatively efficient if it directs savings towards the most efficient productive enterprise or project.

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In this situation, the most efficient enterprises will find it easier to raise funds and economic prosperity for the whole economy should result. Allocative efficiency will be at its optimal level if there is no alternative allocation of funds channeled from savings that would result in higher economic prosperity. To be allocatively efficient, the market should have fewer financial intermediaries such that funds are allocated directly from savers to users, therefore financial disintermediation should be encouraged. The greater the transaction cost, the greater the cost of using financial market and therefore the lower the operational efficiency.

what is efficient market hypothesis

Transaction cost is kept as low as possible where there is open competition between broker and other market participants. For a market to be operationally efficient, therefore, we need to have enough market markers who are able to play continuously.

what is efficient market hypothesis

If all known public information is reflected in the security price, then investing in securities becomes a fair game. All investors have the same chances mainly because all the information that can be known is already reflected in share prices. Information efficiency is important in financial management because it means that the effect of management decision will quickly and accurately be reflected in security prices.

Efficient Market Hypothesis: Implications of the EMH

Efficient market hypothesis relates to information processing efficiency. It argues that stock markets are efficient such that information is reflected in share prices accurately and rapidly. Kavungya answered the question on April 13, at ]

what is efficient market hypothesis

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