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Inefficiency Within a Stock Market Create Barrier to Fulfilment of its Main Function - Assignment Example

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The discussion is an attempt to analyze and explore the effect of the inefficient stock market, how it creates barrier to fulfil the main functions of the stock market and cause difficulties for the managers of the firms for taking a suitable decision…
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Inefficiency Within a Stock Market Create Barrier to Fulfilment of its Main Function
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Download file to see previous pages As the paper stresses the main functions of the stock market includes evaluation of the securities those are listed in the stock market which in turn help the companies to get more capital for production, thus the chances of industrial growth increase. The functions of the stock market also includes the marketing of the government securities, also provide safety in the dealings as the companies have to abide by the rules. The stock market is also the index of the economy; the banks also provide loans against the stock market securities. From the above discussion the importance of the stock market can be understood. But when the stock market which is the economical indicator is not performing as it should be then it would be a problem for the community associated with that stock market.
This discussion declares that the common people who are the investors of the securities they would face problem as the stock market is not reflecting the right information, they may invest in the wrong place. The foreign investors and the government would not get the right information as the stock market is not efficient, not the actual information is available in the market. The managers of the firms also get it tough to take the right decision in the current situation. May be they are thinking that their firm is performing well but their firm is valued less in the stock market. So it will be tough for them to take the decision as they find it confusing as two different valuations of the firm are in front of them. The paper is an attempt to analyze the effect of the inefficient stock market, how it creates barrier to fulfil the main functions of the stock market and cause difficulties for the managers of the firms for taking a suitable decision. The researcher has taken the help of some theories like efficient market hypothesis and uses some articles for conducting the research. Stock Market Efficiency As per Professor Eugene F. Fama an efficient market fully reflect the information available to the investors. The research of Fama was divided in 3 parts on the basis of the information available. In the weak form of efficiency in the EHM claims that the past prices of the security are reflected in the price of the security today. No one can beat the market by doing the fundamental analysis. The semi strong form of tests implies that all the public information available reflects in the current market price of the stock, no one can beat the market by doing the fundamental analysis or the technical analysis. The other degree of efficiency is the strong form of efficiency which implies that even using the insider information the investor can’t have the advantage (Fama, 1970, p.399-412). The accepted view about the efficient market hypothesis is that when the information is available about a specific company then the information spread fast among the investors of the company ...Download file to see next pagesRead More
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