CONCEPT OF CORPORATE FINANCE QUESTION ANSWER 2022

Running head: CONCEPT OF CORPORATE FINANCE
Concept of Corporate Finance
Name of the Student
Name of the University
Author note

CONCEPT OF CORPORATE FINANCE1
Table of Contents
Question 1..................................................................................................................................2
Question 2..................................................................................................................................5
Reference....................................................................................................................................8

CONCEPT OF CORPORATE FINANCE2
Question 1
Efficient market hypothesis (EMH)
The efficient hypothesis is one of the utmost significant theory of investment by
which the price of the shares reflects all the data and reliable alpha generation is not
conceivable. In relation with the model of efficient market hypothesis both the technical and
the fundamental analysis can not provide risk adjusted extra returns, or alpha, constantly and
only insider data can effect in massive risk adjusted returns. Conferring to the concept of
efficient market hypothesis, shares usually operated at their fair value on stock exchanges,
making it difficult for the investor to take decision regarding buying and selling of any
undervalued or overvalued stock.
Even though it is a foundation of contemporary financial model, the efficient market
hypothesis is very debatable and very complex method. The stock market analysts state that it
is meaningless to explore for undervalued shares or to make predictions of the market by
either fundamental or technical analysis (Kilic and BUĞAN 2016).
While from the academic point of view the EMH is the best method to analyse the
stock market, but there are also many variation in that view also for instance it has been
observed that investors like warren buffet have regularly beat the market over long period of
time through fundamental analysis which according to the description of efficient market
hypothesis is impossible. The perception of EMH is also proved wrong by some of the major
instances in the share market, like the fall of the share market in the year 1987 by 20 percent
in a solitary day as an indication that stock price can extremely diverge from their fair value
(Ţiţan, Alexandra Gabriela 2015).
The efficient market hypothesis is one of the hypothesis that is major fact in the
mainstream financial dissertation as it has been detected to have enormous consequences in