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Passive Investment Strategies and Efficient Markets - Book Report/Review Example

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The author of this book review "Passive Investment Strategies and Efficient Markets" touches upon the Burton Malkiel’s investment advice that is based on the underlying theory of the efficient market hypothesis, which was a widely accepted and influential idea in economics in the late 20th century. …
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Passive Investment Strategies and Efficient Markets
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Download file to see previous pages Part of the efficient market hypothesis is the concept of a “random walk,” which refers to a progression of prices that are essentially random developments from previous prices, such that if information is directly echoed by stock prices, then tomorrow’s stock price will mirror only tomorrow’s news and so on (Malkiel, The Efficient Market Hypothesis and Its Critics 1). In the world of an efficient market hypothesis, where picking stocks is basically a game of chance, one must ask about the role of stockbrokers, whose value proposition depends on their ability to pick successful stocks at rates better than chance. Throughout this paper, the role of stockbrokers in an efficient market will be explored in light of the concepts explained and introduced in Malkiel’s A Random Walk down Wall Street, as well as developments in technology that have affected stock trading since the book’s original publication.
A stockbroker is a professional, usually part of a brownie firm, who buys and sells stocks as well as other securities for individual and/or institutional clients in exchange for a fee or a commission. Just like a financial advisor or an investment advisor, stockbrokers are responsible for managing money in a way that meets the best interests of clients, usually by investing that money in securities they feel will appreciate in value consistent with the client’s tolerance for risks and goals for returns. Because of their professional association with exchanges and trading stocks, stockbrokers are regarded as being experts in picking the right ones. The methods that brokers use to pick “the right ones,” however, may vary considerably and, according to the efficient market hypothesis, there really is no uniform way to select good equities for investing, even from a professional perspective. However, stock brokers rely on the idea that their specialized and certified guidance is worth the cost they charge in fees or commissions. ...Download file to see next pagesRead More
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