Corporate Finance Assignment : EMH

Running Head: Corporate Finance
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Project Report: Corporate Finance

Corporate Finance
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Contents
Introduction.......................................................................................................................3
Efficiency market hypothesis...........................................................................................3
Different forms of market efficiency................................................................................3
Discussion about EMH.....................................................................................................4
Difference among the returns...........................................................................................5
Conclusion........................................................................................................................6
References.........................................................................................................................7
Appendix...........................................................................................................................8

Corporate Finance
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Introduction:
Warren Buffet does not believe in efficient market hypothesis. He is one of the
greatest investors in current scenario. Warren Buffet believes that the share price of a
particular company could be controlled by the inventors by selling bulk shares or buying bulk
shares at any time. Due to the information and insider knowledge about the security market,
Warren Buffet managed to outperform in the market and the companies of Warren Buffet has
managed to maintain a good average market rate. The report explains about the EMH and the
related forms of EMH in a security market.
Efficiency market hypothesis:
Efficient market hypothesis is a financial theory which explains that it is not possible
for anyone to beat the stock market and stock price of an organization reflects about entire
position and performance of an organization. EMH theory explains that a stock is always
traded in its fair value and it makes it sure that no stock is purchased or sold in over or under
value (Watson and Head, 2016). Though, the theory of EMH is highly controversial as people
believe that technical and fundamental analysis is pointless while evaluating a stock’s price.
Different forms of market efficiency:
Though, it is believed by EMH theory that market is efficient. However, the EMH
could be categorized into 3 levels, which are as follows:
1. Weak form EMH:
Weak form of EMH explains that it is assumed that the market’s rate of return is
independent. These values changes independently and the market index does not
make an impact on the stock price of the company (Degutis and Novickyte, 2014).
2. Semi strong EMH:
Semi strong form of EMH explains that it is assumed that the market’s rate of return
is semi independent. These values changes with the help of market index as well as
with the internal changes in the organization, stock price of the company is linked
with both the internal changes as well as market index.
3. Strong EMH: