Purchase Solution

Finance Tutorial: Efficient Markets and Informational Asymmetry

Not what you're looking for?

Ask Custom Question

SQ3-3,4

Carefully explain what is meant by the term efficient market. Are there different levels of market efficiency? What are those levels?

Explain what is meant by informational asymmetries. What problem can these asymmetries create for participants in the money and capital markets?

Purchase this Solution
Solution Summary

This solution provides a tutorial that explains what an efficient market is and outlines the different levels of market efficiency. Furthermore, the solution explains what informational asymmetries are and what problem that they can create for participants in money and capital markets. Additionally, this solution includes two reference sources for further investigation of the given topic.

Solution Preview

Carefully explain what is meant by the term efficient market. Are there different levels of market efficiency? What are those levels?

A market is said to be efficient if the price of the securities in that market reflects the available information. Yes there are three levels of market efficiency:
(i) Weak-form efficiency: Weak ...

Solution provided by:
Jayant Kumar, MBA
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
Recent Feedback
  • "I've posted a similar question for another course. It's post 657940, and it's a practice problem that I'd like to use for the final exam. Your help will be greatly appreciated. "
  • "thank you!"
  • "Thank you again Jayant. You are super fast. "
  • "Thank you Jayant. You are appreciated. "
  • "Again, thank you Jayant. You are wonderful. "
Purchase this Solution
Free BrainMass Quizzes
Organizational Leadership Quiz

This quiz prepares a person to do well when it comes to studying organizational leadership in their studies.

Writing Business Plans

This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.

Team Development Strategies

This quiz will assess your knowledge of team-building processes, learning styles, and leadership methods. Team development is essential to creating and maintaining high performing teams.

Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

IPOs

This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)

View More Free Quizzes
Related BrainMass Solutions

  • Shares of diversified firms and pure play firms

    In particular, a diversified firm provided an internal capital market that was believed to be more efficient than external capital markets since it avoided market transactions costs and informational asymmetries.

  • Information Asymmetry in Health Insurance

    This informational disparity is often referred to as asymmetric information".

  • Informativeness of financial statements in efficent markets

    However, if the markets are semi strong the public information revealed by the firms reduces the information asymmetry between the firm management and the investors and hence have an impact on the stock prices.

  • Security Valuation: Information Asymmetry

    Information asymmetry, information precision, and the cost of capital. Review of Finance, 16(1), 1-29. Ball, R., Jayaraman, S., & Shivakumar, L. (2012). Mark-to-market accounting and information asymmetry in banks.

  • Capitalism and greed

    Overall, information asymmetry is not rampant. Greed will lead to economic agents agreeing on efficient outcomes and the market economy works and progresses.

  • Are financial markets highly efficient?

    377275 Your full service stock broker would (assuming that he knows some finance): prefer to have you think that financial markets are highly efficient prefer to have you think that financial markets are inefficient not care any whether

  • New stock offering

    308735 New stock offering You work for abc in the finance department and own shares that are selling at $20 per share on the NYSE.

  • Efficient Market Hypothesis

    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.

  • Forward contracts

    Forward contract is a part of derivative market and helps make it more efficient and complete.

View More Related Solutions