Corporate finance - Research Paper Example

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According to this hypothesis, beating the market is not possible as prices are already included and talks about all relevant information. The theory is not at all free from…
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Corporate finance
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Download file to see previous pages Here in this paper a critical analysis will be done on whether the financial markets are efficient or not. Different theories will be discussed for further analysis. Additionally future probabilities of global financial crisis will also be discussed. It will be done on a step by step basis.
According to the theory of Eugene Fama, markets efficiencies are totally dependent upon information. The hypothesis has mainly three versions. Those versions are Strong, Semi Strong and Weak. Strong form of EMH comments that prices reflect all available public information and also hidden information. Semi strong of EMH states that prices reveal only existing and changing publicly available information. Weak version of EMH tells that prices of traded assets show only publicly available information (Quiry, Fur, Salvi, Dallochio and Vernimmen, 2011). The efficient market hypothesis considers that every investor take all present information in the same manner. This consideration faces lots of oppositions, as stock valuation have some difficulties with this assumption. It is often being noticed that some investors are interested in undervalued stocks and some investors are interested towards growth potentials. It shows that there are huge differences between the ways of thinking of two investors. It is clearly against the theoretical foundations of EMH theory (Ferran and Ho, 2014). It also indicates that with the help of this model ascertaining the worth of stock is impossible under efficient market.
As far the efficient market hypothesis, no investor is ever able to gain greater profitability in compared to others, through the equal amount of already invested funds. It further clarifies that equal ownership of information means investors can only achieve same returns. But this assumption is also not true in different cases as there are very wide ranges of returns. It ...Download file to see next pagesRead More
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