Efficient Market Hypothesis (EMH) and its Forms

This presentation explains the Efficient Market Hypothesis (EMH) and its forms. It discusses the forces that impact stock prices and how news affects them. It is difficult to predict trends in the market through fundamental or technical analysis. Passive and active investors are also discussed.


Efficient Market
Hypothesis (EMH)


Stock price fluctuated
Moves up and down due to
fluctuating demand and supply


Forces that impact
the stock prices
High demand increases market price
More people want to sale stock decreases
market price
News
Unexpected News (Khuntia, & Pattanayak,
2018).


Forces that impact
the stock prices
News
• Negative news cause to sell stock
• Positive news cause to buy stock
Unexpected News
• New information on stock depends how unexpected news
it.
• Future expectation into prices
• Company comes with the high profit then stock price will
also high


Efficient Market
Hypothesis (EMH)
It is an investment theory
Beat the market is impossible
In which, stock price reflect all information
Technical or fundamental analysis cannot produce risk
Only inside information can helps to adjust outside return (Thune, 2018).


Efficient Market
Hypothesis (EMH)
According to EMH, stock always trade at their fair value of
stock exchange
It is a risk for investors to purchase undervalued stocks
Or it can sell stocks for inflated price


EMH
It is difficult to predict trends in the market through
fundamental or technical analysis


Forms of EMH
Weak form EMH
Semi-Strong Form EMH
Strong Form EMH


Forms of EMH
Weak form EMH
All the past information is priced into securities
Fundamental analysis securities provide the information to
investor to produce return above the market averages in the
short term
It does not provide long term advantage
Technical analysis is not work (Barnes, 2016).


Forms of EMH
Semi-Strong Form EMH
Fundamental analysis or technical analysis
information are not beneficial for an investors
New information is priced into securities


Forms of EMH
Strong Form EMH
This form states that all the information both
public and private is priced into stocks
No investors can gain the advantage over the
market
Investors or money managers are not able to
capture the abnormally high returns
The reason of not capturing the return is outliers
that included in the averages


Passive and Active
Investors
Investors invest in index funds or still try to beat the
market averages
Index funds or ETFs are the two options (Naseer, & bin
Tariq, 2015).


Passive and Active
Investors
Some investors invest in index funds instead of trying to
beat the market
The other investors still beat the market averages


 Barnes, P. (2016). Stock market efficiency, insider
dealing and market abuse. Gower.
 Khuntia, S., & Pattanayak, J. K. (2018). Adaptive
market hypothesis and evolving predictability of
bitcoin. Economics Letters, 167, 26-28.
 Naseer, M. & bin Tariq, Y. (2015). The efficient market
hypothesis: A critical review of the literature. IUP
Journal of Financial Risk Management, 12(4), pp.48-63.
 Thune, K. (2018). Efficient Markets Hypothesis (EMH).
Retrieved from: https://www.thebalance.com/efficient-
markets-hypothesis-emh-2466619
References