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Essay / Research Paper Abstract
This 8 page paper examines Efficient Market Hypothesis (EMH). The paper is in two parts, firstly looking at what the theory it and how it operates. The second part of the paper then considers the evidence for its accuracy or inaccuracy. The bibliography cites 15 sources.
Page Count:
8 pages (~225 words per page)
File: TS14_TEEMHstk.rtf
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Unformatted sample text from the term paper:
move in the future. By common-sense we know that any theory will have both strong and weak points, and by definition must not be one hundred percent correct as if
it was the theory would be used by everyone, and the market fluctuations would be reduced. One of the theories that is used is that of the Efficient Market Hypothesis
(EMH). This is a theory that was developed for the most part at the University of Chicago, the theory is both a stand alone theory as well as forming
an integral part of more complex ideas, such as Modern Portfolio Theory (Freeman, 2001). The basic idea is that it is not possible to beat market prices as the
prices will already include the relevant market information (Fama, 1965, 1991). The theory is both controversial and disputed. Those who support the hypothesis state they believe it is useless to
attempt to identify stocks that are undervalued or indulge in market predictions, and there are many academics that will support this hypothesis. The debate is likely to continue,
but to understand the debate we must first understand the paradigm itself. The idea is that, at any given point in time, the price of the stocks or securities, will
reflect the information that is currently available about the stock itself and about the market (Fama, 1991). The implicit ramifications of this theory are far reaching. When we consider
an investor, they will be investing in stocks that they believe will give them a good return, therefore, it is implicit that they are investing in a stock that they
feels worth more than they are paying for it. At the same time as this stocks that are sold are usually sold as they may be seen as reaching their
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