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Financial and Monetary Economics
‘‘Should we consider the Stock Market an efficient market.’’
In theory the Stock Market is said to be efficient as stock prices
should follow a random walk, which, means that stock price changes
should be random and unpredictable, If stock prices were predictable
then this would prove that the stock market is inefficient as this
implies that all available information was not already impounded in
stock prices. Hence the notion that stock prices reflect all available
information is known as the efficient market hypothesis (EMH). It was
Professor Eugene Fama who created the term EMH, in his paper
‘Efficient Capital Markets’ and claimed that in efficient markets
prices reflect all available information. There are three versions of
the EMH, and each of these versions has a different implication for
investment management.
The weak form of the EMT: Suggests that all past market prices and
data are fully reflected in asset prices. The implication of this is
that technical analysis cannot …
… middle of paper …
…Essentials of Investment’, McGraw
– Hill, 2003.