Efficient Market Hypothesis state that stock reflect all available information and I think that valule of stock is not acculate because stock market is control by human. If stock cursh it will affect economy and become depression. Although Efficient Market Hypothesis asset the price reflect all available information but what if the stock cursh and people who have buy the stock is going to be panic because the stock cursh and they can sold out the stock that they have. Also I agree that market can be irrational because some time the market can lead to bubble and cursh which affect economic such like in great depression and 2008 financial crisis which the bubble pop and affect the economy and cursh the market which affect many companies to close down. So I think market is irrational due to the market cannot reflect all available information due to that market is not alway provide accurcy information.
Added by Kelly M.
Close
Step 1
Step 1: Show more…
Show all steps
Your feedback will help us improve your experience
Anand Jangid and 100 other Principles of Accounting educators are ready to help you.
Ask a new question
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Recommended Videos
A columnist in The Economist argues that the efficient markets hypothesis has been "dealt a series of blows" because "in the late 1990s, dot-com companies with no profits and barely any earnings were valued in billions of dollars; and in 2006, investors massively underestimated the risks in bundling together portfolios of American subprime mortgages." 1. The efficient market hypothesis assumes that stock prices will reflect: A. the return on 10-year Treasury notes B. their fundamental values 2. During the dot-com bubble: A. investors knew tech stocks were overpriced but assumed they could resell them for an even higher price B. investors did not collect any information on the profitability of the firms they were buying stocks in 3. While in 2006, investors ended up massively underestimating the risks of subprime mortgages since: A. regulators did not require detailed information regarding each mortgage to be released to investors B. they saw other investors making money off these investments and followed the herd
Anand J.
Describe efficient market hypothesis and explain why it might not be completely true.
Jennifer S.
True or False: The efficient markets hypothesis holds only if all investors are rational. Almost all financial theory and decision models assume that the financial markets are efficient. The informational efficiency of financial markets determines the ability of investors to "beat" the market and earn excess (or abnormal) returns on their investments. If the markets are efficient, they will react rapidly as new relevant information becomes available. Financial theorists have identified three levels of informational efficiency that reflect what information is incorporated in stock prices. Consider the following statement, and identify the form of capital market efficiency under the efficient market hypothesis based on this statement: Current market prices reflect all information contained in past price movements. This statement is consistent with: Strong-form efficiency Semi-strong form efficiency Weak-form efficiency Consider that there is a strong-form of efficiency in the markets. A pharmaceutical company announces that it has received Federal Drug Administration approval for a new allergy drug that completely prevents hay fever. The consensus analyst forecast for the company's earnings per share (EPS) is $5.00, and insiders agree with analyst expectations. They too expect that, with this new drug, earnings will drive the EPS to $5.00. What will happen when the company releases its next earnings report? The stock price will increase and settle at a new equilibrium level. The stock price will not change because the market already incorporated that information in the stock price when the announcement about FDA approval was made. There will be some volatility in the stock price when the earnings report is released; it is difficult to determine the impact on the stock price.
Manasvee S.
Recommended Textbooks
Horngren’s Cost Accounting
Cost Accounting A Managerial Emphasis
Principles of Accounting Volume 1: Financial Accounting
Transcript
Watch the video solution with this free unlock.
EMAIL
PASSWORD