The Efficient Market Hypothesis ( Emh ) Essay

1448 Words Sep 2nd, 2015 6 Pages
The efficient market hypothesis (EMH) is widely used to analyse the financial market and security prices. The EMH is efficient if public information is totally reflected by asset prices (Malkiel, 2003, p.59). Malkiel (2003, p.59) implies that information of stock market was exactly shown by security market. In the last ten years, the EMH had significant effect on the financial market. This essay aims to show the three main types of the EMH and analyses if the EMH works in the real market economy. This essay will explain the meaning of three efficient market forms. It will then analyse the implication of the EMH. Finally, it will discuss the challenges of the EMH.

The efficient capital market is the market which totally shows the truth factors (Hillier et al., 2012, p.353). The rule of the EMH is that people can learn about most all of the information through the stock prices (Westerlund, 2015, p.357). The efficient market hypothesis is important for companies and investors. Investors want to get profit immediately because prices can reflect the information promptly. Companies hope to get fair value from the securities that it sells. Malkiel (2003, p.59) implies that the “random walk” is related to the EMH, and the change of security prices is not always the same. The efficient market is divided into three different kinds of forms, because security prices show different levels of information. They are weak form, semi-strong form and strong form efficient market.

The weak…

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