The controversy over efficient capital markets has not yet been resolved. Some academic financial economists have grouped themselves into three camps, with some adhering to market efficiency, some believing in behavioural finance, and others have not yet convinced that either side has won the argument. Comment on these camps by:
1. Discussing the existential evidence supportive of and against market efficiency.
2. Discuss the behavioural dispute to market efficiency.
1. Discuss the empirical evidence supportive of and against market efficiency.
One of the most controversial issues in finance is whether the financial market is efficient in allocating its economic resources and info or not. The primary role of the capital market is allocation of self-possession of the economys capital stock (Fama 1961). An efficient financial market is a market in which securities reflect all possible culture quickly and accurately.
In Eugene Famas (1970) influential article, Efficient crownwork Market, Fama introduced the Efficient Market Hypothesis (EMH); markets which have a large number of knowledgeable investors who react quickly to impudently information, causing securities prices to adjust quickly and accurately.
EMH was essentially about: (1) the surmisal that stock prices reflect the true value of stocks; (2) the absence of trade opportunities in an economy populated by rational, profit-maximizing agents; and (3) the hypothesis that market prices always mounty reflect available information (Fama 1970). Prices would provide accurate signals for resource allocation in the market. therefrom in an efficient market, firms would be able to make costly production-investment decisions, and investors would be able to choose wisely among the securities that represent self-will of firms activities.
Empirical evidence, provided by numerous tests of these issues, can be utilize to support or reject efficiency in the financial market. In this essay, we will be...If you want to get a full essay, order it on our website: Orderessay
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