Share
Explore BrainMass

Efficient Market Hypothesis

The assignment is about critically evaluating the existing literature on the implications of efficient market hypothesis. I am expected to review both theoretical and empirical literature.

I'm interpretating in a number of ways - I am required to 'critically evaluate the existing literature on the implications of efficient market hypothesis'

Does that mean I should follow the lines of finding literature that critizies / evaluate or anything on EMH and come up with a conclusion of how EMH has been 'affected' by these critics ? Or is it on the lines of behavioural finance.

I have found limited literatures on wikipledia under the section 'critisim and behavioural finance' - http://en.wikipedia.org/wiki/Efficient_market_hypothesis

If you could help by:

1. a guide on how should I approach the question /personal view of answering the question

2 layering an outline and format / approach you would take when attempting to answer the question

3. finding more literatures (both theoretical and empirical ) than those few found on wikipledia

4. answering how these literatures have an implication to EMC
-the views of people working with the finance sector (stockers, bank)
-attitudes of investors and their confidence
- EMH's reliabilty
- whether it has changed or not, compare the past (i.e. before and after economic crisis in 2008

5. telling me what other related issues that you would consider worth note taking and relevant to the question that i haven't explored

Please put a clear references/links behind any theories / literature reviews you have used.

Solution Preview

1. A guide on how should I approach the question /personal view of answering the question.

One way of approaching the question is to review some of the scholarly articles related to EMH and classify them in accordance to what they assert. This will give the reader of your paper an insight into the manner in which academics have handled this subject. The piece "Criticism and behavioral finance" is helpful because it gives you the names of authors that have worked on the EMH both on the theoretical basis as well as on the empiricism based.

2. Layering an outline and format / approach you would take when attempting to answer the question

The approach you take should be based on the review of literature related to EMH:
The format and outline of the paper should be as follows:
1. Introduction:
2. Patterns of Predictability suggested by some of the studies of past stock prices:
3. Future stock returns: Predicted using the EMH.
4. Firm Characteristics and valuation parameters used in EMH literature:
5. The inefficiency of the EMH related literature:
6. Professional Fund Managers and the EMH:
7. Conclusion:

3. Finding more literature (both theoretical and empirical) than those few found on Wikipedia

T Schwert, G. William. 2001. "Anomalies and
Market Efficiency," in Handbook of the Economics
of Finance. G. Constantinides et al., eds. Amsterdam:
North Holland, Chapter 17.

Shleifer, Andrei. 2000. Inefficient Markets: An
Introduction to Behavioral Finance. New York: Oxford
University Press

Fama, Eugene. 1970. "Efficient Capital Markets:
A Review of Theory and Empirical Work."
Journal of Finance. 25:2, pp. 383-417

Fama, Eugene. 1998. "Market Efficiency,
Long-Term Returns, and Behavioral ...

Solution Summary

This explanation provides you a comprehensive argument relating to Efficient Market Hypothesis

$2.19