In terms of market efficiency, explain why the market's pricing of the shares of large companies is said to be "efficient" and the pricing of small company shares is thought to be "inefficient".
Added by Travis S.
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In an efficient market, prices adjust quickly to new information, making it difficult for investors to achieve returns that exceed the average market return on a risk-adjusted basis. Show more…
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the concept of market efficiency underpins almost all financial theory and decisions . when financial markets are efficient , the price of a security such as a share of a particular corporation's common stock should be the present value estimate of the firm's expected cash flows discounted by its appropriate rate of return(also called the intrinsic value of the stock)
Kenny M.
Which of the following is NOT correct with respect to the Efficient Market Hypothesis? If markets are semi-strong form efficient, then fundamental analysts would not be able to earn abnormally good returns, after considering the risk they assume. Semi-strong form efficiency says that if a company announces a labor strike, the stock price very quickly adjusts downward. Evidence suggests that markets are NOT strong form efficient, since insiders could make abnormally good returns trading on private information. However, that is illegal. Semi-strong form efficiency says that when Stryker makes an earnings announcement, the stock price quickly reflects the new information. Weak form efficiency says that technical analysts who study charts of stock prices and volumes can regularly make abnormally good returns, after considering the risk they assume.
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According to the efficient market theory, A. prices of actively traded stocks can only be over-valued in an efficient market B. prices of actively traded stocks do not differ from their true values in an efficient market C. prices of actively traded stocks can be under- or over-valued in an efficient market, and bear searching out D. prices of actively traded stocks can only be under-valued in an efficient market
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