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Efficient Market Hypothesis and stock markets

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Does the Efficient Market Hypothesis do an adequate job of explaining how the stock market functions? Please explain your answer in detail.

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Yes, the efficient market hypothesis does provide a sound understanding of the functioning of the stock markets. The basic premises of EMH is that the current prices of stocks reflect all publicly available information and hence, they are fairly priced and it is not possible for investors to earn excess profits by using this information. EMH states that stock price adjust themselves quickly to the continuous arrival of new information about the stock and it is impossible for an investor to earn higher profits by ...

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Whether the Efficient Market Hypothesis do an adequate job of explaining how the stock market functions is determined. The expert explain their answer in detail.

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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