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Efficient Markets Hypothesis (EMH)

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1. What is EMH?

2. How EMH impacts investment in securities?

3. How EMH impacts on corporate decisions?

4. Is, EMH, aplicable to real assets such as plant and equipment?

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Solution Summary

Efficient markets hypothesis (EMH) is examined. How EMH impacts investment in securities and corporate decision is determined. The application to the real assets such as plants and equipment are determined.

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1. EMH asserts that financial markets are "informationally efficient". That is, one cannot consistently achieve returns in excess of average market returns on a risk-adjusted basis, given the information publicly available at the time the investment is made.

There are 3 forms of EMH you need to know,

a. weak form emh states that no future price can be predicted using existing prices (i.e. you cannot predict future stock prices by looking at its chart).

b. semi strong form emh states that share prices adjust to publicly available new information very rapidly and in an unbiased fashion, such that no excess returns can be earned by trading on that information. This means that when ...

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