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Efficient Market Hypothesis

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1. How do you think efficient market hypothesis should impact the drafting of accounting standard
2. Does accounting really have predicting power?

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https://brainmass.com/business/business-math/efficient-market-hypothesis-340299

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According to www.investopedia (2010), efficient market hypothesis is an investment theory that states it is impossible to 'beat the market' because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices; as such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments.

In addition, according to capitalflowanalysis.com (2010) this strange hypothesis (Efficient Market Analysis) states in essence, that because market players are so smart and correct information so widely distributed, the price determined by supply and demand in this efficient ...

Solution Summary

Efficient market hypothesis states, in essence that because market players are so smart and correct information so widely distributed, the price determined by supply and demand in this efficient market must be the same as the intrinsic value of the securities traded. Thus, according to this theory, it is impossible to 'beat the market' because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information.

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See Also This Related BrainMass Solution

Efficient Market Hypothesis- strong-form, semistrong-form, weak-form

Which is true and why?

Which of the following is correct?

a) The Efficient Market Hypothesis suggests that the market does not price stocks fairly; hence, managers should make decisions based on the premise that a firm's stocks are undervalued or overvalued.
b) An individual who has information about past stock prices would be able to profit from this information if weak-form market efficiency exists.
c) An individual who has inside information about a publicly traded company should be able to profit from this information if strong-form market efficiency exists.
d) For the Efficient Market Hypothesis to hold true, every individual investor must be "rational"
e) Semistrong-form market efficiency means that stock prices reflect all public, but not necessarily all private information.

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