Efficient Market Theory and Insider Trading
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Please explain the meaning of efficient markets. Why might we expect markets to be efficient most of the time? In recent years, several securities firms have been guilty of using inside information when purchasing securities, thereby achieving returns well above the norm (even when accounting for risk) does this suggest that the security markets are not efficient. I don't understand that can you please explain.
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Solution Summary
This solution explains the Efficient Market Theory and reconciles it to the returns garnered by insider trading.
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Basically, the Efficient Market Theory holds that all of the information need by well-informed market participants to make decisions regarding a company's securities (i.e., to buy, hold, or sell the securities) are widely-available. (Note that a well-informed market participant need not be a person or institution with all of the information to make such a decision; the participant need only have enough ...
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