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    Efficient market hypothesis

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    In an efficient equity market, where there are no mis-priced stocks, no one can make abnormal rates of return. If this is the case, how would you then justify the existence of well-paid financial analysts in all states?

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    This issue relates to the Efficient Market Hypothesis.
    It states that at any given time, security prices fully reflect all available information. The implications of the efficient market hypothesis are truly profound.

    There are three forms of the efficient market hypothesis

    1. The "Weak" form states that all past market prices and data are fully reflected in securities prices. In other words, technical analysis is of no use.
    2. The "Semistrong" form asserts that all publicly available information is fully ...

    Solution Summary

    This explains the efficient market hypothesis