Applying the EMH Evaluate the Role That Government Played In Economic Recovery Using Recent Real-life Examples - Essay Example

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The topic under review is of efficient market hypothesis under government intervention. This is a very important topic at the current juncture wherein most of the countries are under the scanner of financial crisis. There is not just enormous scope in the study of the given topic but also the need to understand the government intervention and management…
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Applying the EMH Evaluate the Role That Government Played In Economic Recovery Using Recent Real-life Examples
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"Applying the EMH Evaluate the Role That Government Played In Economic Recovery Using Recent Real-life Examples"

Download file to see previous pages because of the market volatility due to the different government policy and the detailed study would tend to give a great learning opportunity about this adverse scenario. Efficient Market Hypothesis (EMH) Theory Efficient market hypothesis implies that, if any new information about a company is revealed it will be immediately incorporated into the share price rationally and rapidly, with respect to the direction of the share price movement and its size. In an efficient market except by chance, no trader will get an opportunity to earn abnormal return on a share or a return which is greater than the fair return for the risk associated to that share. The possibility of absence of abnormal profits arises because the past and current information is immediately reflected in the current share prices. The prices are affected only by the new information. EMH is concerned with under what conditions an investor can gain abnormal profits or excess returns in a stock. EMH claims that all the information available readily reflects in the price of the stock. According to EMH abnormal positive returns are not possible by any trader using the information available to public. Many people think that market efficiency means that it is impossible to outperform the market at any given point of time which is incorrect. Efficiency does not mean that prices will not apart from true value: At any point of time it is expected that prices will deviate from their true value, majorly because value depends on the future and future is unpredictable. Efficiency does not mean that no investor will be able to beat the market in any single time period. In an efficient market approximately one half of the shares purchased subsequently outperform not because of the skill but due to the fact that prices...
This report stresses that market efficiency has been tested over a long period of time and it has been observed that movement of the stock prices follow a random walk. The random walk theory states that an investor can have a good chance of beating the market if they throw darts on New York Times stock listing pages. Investors who adhere to the random walk theory believe that searching for undervalued shares or predicting the future stock price is just a waste of time. Any new developments of government like restructuring the tax legislation, controlling the financial crisis and the inflation etc reflect in share prices of the different corporation. Followers of random walk theory believe that is impossible to predict future events and they are left with no other choice but to accept the efficient market hypothesis.
This essay makes a conclusion that it cannot be denied that the government interventions play a crucial role in stabilizing the economies that were overturned due to the financial crisis as result of devaluation of properties or inability to service the debt obligations. Due to the global crisis, the investor confidence eroded which had adverse impact on the stock prices. The fluctuation in the stock prices was also due to drift in the present market condition. As a result of revised regulations and containing policies by the government, the economies started to revive and the interest of the investors were protected. This resulted in the decrease in volatility of share prices which reflects belief of the investors from their anticipation of future events in the economy. This follows the efficient market hypothesis. ...Download file to see next pagesRead More
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