The Efficient-Market Theory and Hypothesis (EMH) An efficient market is a market where all the important information is available at the same time to all participants of the market. Similarly prices respond immediately to the available information. The example of an efficient market is the stock market (McMenamin 130). It is important to note that in the stock market shares of the publicly held companies are issued and traded either through an exchange or over-the-counter markets. The exchange of shares means that an entity’s shareholders can acquire the shares of another when they join or take over another company. On the other hand over-the-counter trading involves quoting prices in a bid to buy or sell shares. With all this in mind the companies will be able to access capital in exchange for giving part of the company’s ownership. In the market new information is constantly available which reflects how course of action to their goals. Predictable human error in reasoning and information processing. This outcome can make investors avoid value stocks and buy growth stocks at expensive prices. The cost of acquiring the market information is very high Generally speaking the efficient-market hypothesis helps investors to make sensible market choices. In order to make a profit they must take quick action in the occurrence of any abnormalities in the market. Stock investments boost the economic conditions of a country hence raise the living standards of individuals. References Brigham Eugene F and Louis C Gapenski. Financial Management. 1st ed. Chicago Dryden Press 1988 . Chandra Prasanna et al. Financial Management. 1st ed. Shah Alam BIROTEKS (Biro Penyedian Teks) Universiti Teknologi MARA 2000 . McMenamin Jim. Financial Management. 1st ed. London Routledge 1999 . Ogilvie J. Financial Strategy. 1st ed. Oxford CIMA 2005 . Pettinger Tejvan. "Efficient Market Hypothesis | Economics Help". Economicshelp.Org 2016 http://www.economicshelp.org/blog/1661/economics/efficient-market-hypothesis/. [...]
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