Essay on Capital Markets : Efficient Capital Market

1018 Words Feb 3rd, 2016 5 Pages
Efficient Capital Markets
Efficient Capital Market is basically the market where the prices of the shares indicate correct information about the stock and at the same time as well. This market efficiency can be judged by the information incorporated into it, which pertains to the value of the securities, which gives a strong indication of the price of the securities. The primary value of the stock refers to the cash flows that may be expected by a person who is the owner of the particular stock. The variation of the price in the stock acts as an encouragement for the owners of the stock to trade in them in a competitive manner where the ultimate objective is to make a profit. As a result, there are different price movements, which tend toward the present value of the cash flows in the future. The same information can also be availed at cheaper rates due to the presence of many organized markets and other technological innovations. A capital market maybe called efficient when the information can be incorporated quickly and the prices of stock can be stated accurately (Fama, (n.d).
When the capital market is weak, then the information about the history of past returns ad prices are indicated in the prices of the securities. This information is not very helpful for the stockowners as they are not able to judge the information correctly and additionally the fluctuation of the stock cannot also be predicted remotely. Therefore, due to the lack of the prediction about the…

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