StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Weak Form Market Efficiency - Essay Example

Comments (1) Cite this document
Summary
Information that is contained in the stock market data is considered by a few to be able to guide investors and analysts about the future course the stock markets might take in terms of predicting equity prices and returns…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER95.1% of users find it useful
Weak Form Market Efficiency
Read TextPreview

Extract of sample "Weak Form Market Efficiency"

Download file to see previous pages However finance theory assumes idealistic models for the stock markets and formulates the investor utility functions and expectations accordingly. These models are based on perfect competition and passage of information in an unfettered manner. As Wikipedia (2007) seems to point out, "In economics and financial theory, analysts use random walk techniques to model behavior of asset prices, in particular share prices on stock markets, currency exchange rates and commodity prices. This practice has its basis in the presumption that investors act rationally and without bias, and that at any moment they estimate the value of an asset based on future expectations. Under these conditions, all existing information affects the price, which changes only when new information comes out. By definition, new information appears randomly and influences the asset price randomly.

Empirical studies have demonstrated that prices do not completely follow random walk. Low serial correlations (around 0.05) exist in the short term; and slightly stronger correlations over the longer term. Their sign and the strength depend on a variety of factors, but transaction costs and bid-ask spreads generally make it impossible to earn excess returns. Researchers have found that some of the biggest prices deviations from random walk result from seasonal and temporal patterns. In particular, returns in January significantly exceed those in other months (January effect) and on Mondays stock prices go down more than on any other day. Observers have noted these effects in many different markets for more than half a century, but without succeeding in giving a completely satisfactory explanation for their persistence. Technical analysis uses most of the anomalies to extract information on future price movements from historical data. But some economists, for example Eugene Fama, argue that most of these patterns occur accidentally, rather than as a result of irrational or inefficient behavior of investors: the huge amount of data available to researchers for analysis allegedly causes the fluctuations. Another school of thought, behavioral finance, attributes non-randomness to investors' cognitive and emotional biases".
Taking an apposite viewpoint Leverton () states, "Without market fundamentals being able to predict prices, the investor is forced to learn new ways of investing.. Ratios and trend analysis are important to picking a winning portfolio. Subscribers to the adaptive expectations theory believe investors are
backward looking in deciding on the correct price to pay for a stock". Realized and expected rreturns from the stock markets have been the subject of intense debate since a long period of time .Several theories suggesting various constructs and factors responsible for determining the returns from the stocks have been postulated thus far.It was not until the late 1960s and early 1970s that a fully-developed, empirically-supported theory of share prices' behavior emerged in the form of the Efficient Markets Hypothesis (EMH).Prior to the development of the EMH , analysts assumed some degree of dependence across successful price changes. Very many efforts were made towards identifying a predictable trading pattern which could be used for chasing profitable deals. From the mid-1950s to the early 1980s, a random walk theory (RWT) of share prices was developed based on the past empirical evidence of randomness in share price movements. RWT ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Weak Form Market Efficiency Essay Example | Topics and Well Written Essays - 4250 words”, n.d.)
Weak Form Market Efficiency Essay Example | Topics and Well Written Essays - 4250 words. Retrieved from https://studentshare.org/miscellaneous/1501619-weak-form-market-efficiency
(Weak Form Market Efficiency Essay Example | Topics and Well Written Essays - 4250 Words)
Weak Form Market Efficiency Essay Example | Topics and Well Written Essays - 4250 Words. https://studentshare.org/miscellaneous/1501619-weak-form-market-efficiency.
“Weak Form Market Efficiency Essay Example | Topics and Well Written Essays - 4250 Words”, n.d. https://studentshare.org/miscellaneous/1501619-weak-form-market-efficiency.
  • Cited: 0 times
Comments (1)
Click to create a comment or rate a document
to
toneyrussel added comment 8 months ago
Student rated this paper as
Great work done on the "Weak Form Market Efficiency.". I think it is the best essay I have seen so far.

CHECK THESE SAMPLES OF Weak Form Market Efficiency

Stock market efficiency

... can change the definition of the efficiency in the market to cover up this aspect. The continuous profit seeking behavior of the investors can generate efficient type of markets. But the hypothesis does not rule out the existence of many other variables that are not deemed for the strategy of profit seeking. If the weak form of efficient market hypothesis is studied it can be observed that the historical movements in prices are of no utility in order to predict the future price movements under this form. The magnitude or the direction of the price movements will be of no help either. The semi-strong form of hypothesis asserts that the all the publicly available information is of no help to predict the future movements in price. Thus...
13 Pages(3250 words)Dissertation

Market efficiency

... that they are privy to the same information. The efficient market is categorized into three versions based on the timing and nature information that is available to all the investors at a given time. They include weak form efficiency, semi-strong form efficiency and strong form efficiency (“Market Efficiency”, 2011). These versions of efficient market show the extent to which information plays a significant role in shaping efficiency in private market place. Under a weak for efficiency the current prices is often a reflection of the information about past prices and in such situations investors are only left with the option of strategizing to take advantage of market inefficiencies based on past prices. This will lead to market efficiency...
8 Pages(2000 words)Assignment

Efficiency in the Market

...? Efficiency in the market Thesis ment: How to improve Efficiency Efficient market is defined as one where in which trading on available information fails to provide abnormal profit. A framework of the analysis is required to explain the behavior of human beings. There is notion that competitive market has the ability to achieve the efficient resource allocation automatically, market efficiency depends on the process that will eliminate excess supply or excess demand. Productive efficiency is given by the equality between price and average total cost. It requires goods to be produced in the least cost way. The firms are forced at the minimum level of average cost in the long run. The consumers are benefitted under productive efficiency...
5 Pages(1250 words)Essay

Testing Weak-Form Efficiency of Chinese Stock Market

...?LITERATURE REVIEW The Literature in General The present corpus of literature on market efficiency is quite extensive. This is probably because stockmarkets are essential components of modern economic systems. Hence, one can find many studies that provide general background and specific themes addressing relevant issues today. However, the popular finding is that there is still some degree of inconclusiveness with the kind and amount of results exhausted by previous studies. Mama (2010, pp.98), for example, explained that such inconclusiveness may be caused by some failure in methodological strategies used. A specific concern of this review involves the weak-form of market efficiency. Ho and Lee (2004) provided deep insights in this aspect...
5 Pages(1250 words)Literature review

Market efficiency

...?MARKET EFFICIENCY of Forms of Market Efficiency Market efficiency as put forth by Fama (1970; p. 57) proposes that any given moment stock prices totally replicates all the information accessible on a given market or securities. therefore according to the efficiency market hypothesis, there is no investor who has any form of advantage in foretelling the expected return on the security prices since there is no investor who has access to the public information or private information that is not yet available to any other investor. There are various forms or degrees of market efficiency which exists. These comprise of strong market efficiency, semi-strong market efficiency and the weak form market efficiency (Ho & Yi, 2004; p. 57...
7 Pages(1750 words)Essay

Efficiency Market Hypothesis

...Discuss Efficiency Market Hypothesis in the context of the "crash of 2008," and/or the "Internet bubble" Introduction Efficient Market Hypothesis (EMH) holds that stocks or shares trade at their fair value thus preventing buyers and sellers from gaining unduly from market inefficiency. In other words since the market functions efficiently investors cannot buy undervalued shares or sell overvalued shares. Thus if any investor desires to earn higher returns he has to buy much riskier shares or bonds. When stocks rose by high percentages the analysts said that it was due to the efficacy of stock markets and therefore the positive rally reflected the true performance of the companies. Efficient markets do exist in theory. For example...
8 Pages(2000 words)Essay

Market Efficiency and Investment

... the following: 1) The weak form : In this level, prices reflect everything that could be made out from past prices. 2) Semi-strong form: In this case, prices reflect all the public information that is available. 3) Strong form: Here prices are ubiquitous and reflect all information. There is enough evidence to substantiate the claim that UK commercial property market is rather more sound at the weak form level. Barkham and Geltner have also voiced their support for the weak form efficiency for the UK commercial property market. Given this level of efficiency, prices don’t give away all information that is publicly available and leaves scope for investors to undertake research. They dig deeper into research to identify any more...
8 Pages(2000 words)Essay

Efficiency of the market

...Efficiency of market is hugely critical factor for addressing the market anomalies and optimizing the performance outcome within a competitive market. Market efficiency primarily refers to the best allocation of resources to meet the changing demands of the people at competitive price. By producing the goods that meet the requirements of people and making them available at the right price. Indeed, market efficiency is greatly impacted by bureaucratic measures and control on the market paradigms like price, resources and allocation competency vis-à-vis products and services significantly impact outcome. At the same time, perfect indiscriminate price monopoly not only leads to the optimal benefit to the firm but also maximizes market...
1 Pages(250 words)Essay

The Test of Market Price for Weak Form Efficiency

...The Test of Market Price for Weak Form Efficiency Introduction Market efficiency has been the central point of discussion in finance in the recent times, as experts attempt to ascertain the randomness of prices in the different markets. Market efficiency theory posits that the past market prices can influence the current one, and as a result, the technical analysis might be irrelevant when making a forecast on the future prices (Besley & Brigham, 2012). Theoretically, market efficiency in its weak form is founded on the notion of fundamental analysis, and that the result shows that stocks can either be undervalued or overpriced. The presence of the market efficiency in its weak form when looking at historical prices can be explained...
5 Pages(1250 words)Assignment

Capital Market Efficiency

...Capital Market Efficiency al Affiliation: Capital Market Efficiency An efficient capital market plays a significant role in the financial management of the firm by providing the top-level managers with detailed and accurate information of the prices of the share. As a result, it becomes easy to make critical decisions that will improve the financial position of a public firm (Moyer, McGuigan, & Rao, 2015). The reason is that the financial markets are able to respond to the new information that has been released in the markets. Another implication is that the sale or the purchase of any security at the current price in the market is zero NPV (Moyer, McGuigan, & Rao, 2015). The reason is that the information is reflected immediately...
2 Pages(500 words)Assignment

Clothing Retail Market in General

The industry is оverwhelmed with cоmpetitiоn frоm cоmpаnies which hаve invested in hi-tech mаchinery leаding tо greаter efficiency оr hаve plаced their prоductiоn tо fаctоries in cheаp lаbоur cоst cоuntries tо prоduce their prоducts. Hоwever, mоst pаrt оf the cоmpаnies in this sectоr mаke nоt very high prоfits. Tо increаse the mаrket shаre in this аrenа is nоt аn eаsy tаsk, аnd therefоre it needs а greаt deаl оf endeаvоur, knоwledge, аs well аs energy аnd mоney.
Clоthes retаilers fаll intо twо brоаd cаtegоries: firstly, thоse selling оwn-brаnd clоthing аnd, secоndly, thоse selling third-pаrty weаr. Mаjоr retаilers such аs Mаrks & Spencer аnd the Аrcаdiа Grоup аre gооd exаmples оf the first grоup, аs аre chаin оperаtiоns s...
18 Pages(4500 words)Research Proposal

Correlation between Motivation and Efficiency

It also has many warehouses to deliver chilled and frozen food to customers. It is highly unpleasant for the workers to work in the chilled warehouses. Just five years ago, one of the warehouses in Stroke-on-Trent introduced a new technical system that transformed the attitude of the workers and their efficiency.
Though the company spent almost £ 300,000 on installing a new system, it reckoned that by cutting down the mistakes and providing a better workplace for workers it could save that much amount in the first year itself. Prior to the installation of a new communication system, workers felt much boring with the old techniques of writing the movements of goods by a bit of paper and pencils. Apart from mistakes and e...
6 Pages(1500 words)Research Paper

Starbucks in Chinese Market

In the year 1996, the coffee giant marked its global presence. Up until 2004, the Chinese government prohibited Starbucks to operate its own stores in China. As a result, the coffee giant enters the Chinese market by joint-venturing with Chinese food and beverage companies and licensing other companies to own and operate its stores--differs from its domestic approach. But the company was able to easily overcome its initial obstacles and marked its presence in China very quickly and successfully with great brand recognition and customer satisfaction. The company also tailors its stores to match the local atmosphere. This is a transnational strategy. “For example, the Starbucks strategy in Shanghai is to attract middle to high...
7 Pages(1750 words)Case Study

The Challenges of Foreign Market

Any multinational company is exposed to risks such as change of foreign currency exchange rate, commodity prices, and interest rates because it denominates its transactions in foreign currencies. That’s why there is also some uncertainty in future earnings, liabilities and assets values.
Therefore, before taking a decision on the country of entry, a profound analysis of its current political and economical situation is to be performed. According to Kotler and Armstrong (351-361), a decision on whether to enter a foreign market should be based on a profound analysis of potential risks and opportunities, as well as the company’s internal resources.
The company is a Limited Liability that exports roasted and gro...
11 Pages(2750 words)Case Study

Efficiency and Profitability of Exxon Mobil

This increase could signify a change in credit policy for the company to stimulate more sales. The average collection period is computed by dividing the accounts receivable by daily credit sales. According to the computation for the year 2007, both the level of accounts receivable and daily credit sales have increased.
Accounts receivable turnover goes hand-in-hand with the average collection period—the longer the collection period, the lower the collection turnover. This is also evident in the trend of the accounts receivable turnover. This longer collection period and lower accounts receivable turnover, while it has some advantages over boosting sales, definitely impacts the liquidity of the firm and availability of t...
11 Pages(2750 words)Case Study

Form and Function of the Shwedagon

Some of the smaller spires (sides) and pavilions are around the base of the central stupa while others are in remote corners of the wide esplanade that encircles the pagoda (as seen in Figures 1-3 below). The platform measuring around 280 by 220 meters was leveled more than 2000 years ago, long before founding the city of Rangoon, which is the present-day Yangon. The spacious pavilion surrounding the pagoda promotes devotees’ engaging in prayer and facilitates their walking around the pagoda, which is part of the worship. The Shwedagon Pagoda road is lined with monasteries, rest houses (zayat), and other pagodas such as the Maha Vijaya opposite the southern stairs (Falconer et al, 2001: 55).
According to the legendary h...
7 Pages(1750 words)Case Study

Oil Prices by OPEC and Market Fundamentals

Market failure is defined as the inefficient allocation of resources by the market, the free market is considered to optimally prices and resources in the production of goods and services, and this is because the price and quantity produced are determined by market forces which include the demand and the supply. The control of prices by a firm or an organization in the market results in market failure, therefore OPEC leads to market failure due to its nature in the market.

OPEC was formed in 1960 by 5 oil-producing countries which include Venezuela, Saudi Arabia, Kuwait, Iran and Iraq, The aim of this organization was to unify petroleum-producing countries in order to realize fair and stable prices of oil .other oil-pro...
6 Pages(1500 words)Report

Segmentation, Target Market, and Positioning of the Fortified Wine

There are some types of fortified wines which carry a rich legacy and ethos of the Australian culture and society. This rich history and distinct flavour can be utilised to penetrate growing markets like China and build a strong brand presence there when the market is relatively immature. Moreover, tweaking of marketing, distribution and pricing strategies would offer greater sales potential for the fortified wine industry itself in Australia.

Among the variety of wines that are available, the Australian wine industry offers an attractive bevvy of the following variants of red wine, white wine, vintage wine, sparkling wine, dessert wine and fortified wines.

The fortified wines are also termed as “liquid...
10 Pages(2500 words)Business Plan

The Effects of Financial Crisis on Supplier Selection Criteria of the Oil and Gas Industry Equipment Market

It is a difficult task to find those vendors who not only have the adequate quality and quantity of the needed raw materials but who also have an attitude of efficiency and display commitment to customer service (Sonmat, 2006). Further, organizations also strive to locate and select vendors who can be depended upon for long term relationship.

The number of factors or attributes desired from the vendor is vast, and different organizations and different industries place different importance on the attributes (Sonmat, 2006). Some of the vendor attributes may gain importance owing to the nature of the industry, for example, in the case of consumer perishables suppliers, like fresh vegetables or fruits, the buying firm would...
20 Pages(5000 words)Literature review

Foreign Market Entry and Diversification

In 1990 a completely new trend was found as the domestic companies began to expand their business in a foreign market. Belgian company would be a great example as the company acquired breweries in 20 different countries. In 2004 two of the biggest breweries in the world, Interbrew and AmBev decided to merge with each other and the largest brewery in the world was created. This merger and acquisition strategy became a popular trend and it is reflected from the list of the top breweries which include SABMiller, Anheuser-Bush and InBev.

However, some of the recent trends have prompted the prediction that consumption of beer will go down in some of the European countries like France, Spain, and Germany. The threat of such a...
7 Pages(1750 words)Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Weak Form Market Efficiency for FREE!

Contact Us