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Market efficiencyMarket efficiency means that situation in the financial market where the expected return of the market isequal to the required rate for return (Hamid, 2017). The market price of the securities is equal to theintrinsic value of the security and they should not be either overpriced or underpriced.The strategy used in the efficient market by the investors In an efficient market the price of the securities nor undervalued neither overvalued and is not expected tofluctuate in the future period also apart from unforeseeable events that can influence the price of thesecurity. Thus in this type of market the only sensible way to earn better return is to invest in the companywhich is performing better than others and giving higher returns as compared to the other companies inthe market. The prediction of the future price is worthless as the prediction of stock price is simplyprediction of the future which is not practical. Simple trading is the better option and a good strategy toearn good return. The positive and negative information that are associated with the security should beevaluated and studied as they can change the price of the stock in the future. The external factorsassociated with the stock will become more important as that they become the price fixture for theinvestors in the financial market. The market portfolio stated in the answer will be the portfolio of all thesecurities that are presently available in the market. The market portfolio is calculated by weight age ofeach type of securities (Paranjape, 2013). Therefore in this case the weight of the each type of security iscalculated by dividing the market value of the security with the aggregate market value of all thesecurities that are available in the marketThe investors can use asset allocation technique in an efficient market situation the asset allocationtechniques provide the investors and option to maintain risk of their portfolio as per their expectation andreturn of the portfolio can be decided to the highest keeping in mind the risk to be maintained (Andonov,2017). The asset location is also a good technique for hedging the portfolio. Different securities havedifferent return and risk which, some securities provide higher risk but the return coming from thatparticular stock is also high and some investing option can provide constant and less return but are lessrisky from financial point of view. In an efficient market holding period of the security should be long asthe market is less volatile and the good stocks once purchased will give a high return for a very long time.Investment decision in an imperfectly efficient marketImperfectly efficient market is the market where the security is either undervalued or overvalued. Theimperfectly efficient market provides the investors with some profit making opportunities (Martin, I.,2 | Page
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