Efficient Market Hypothesis Analysis: Finance Report and Challenges

This report provides an analysis of the Efficient Market Hypothesis (EMH), a central theory in finance. It explores the EMH's core principles, including the idea that stock prices reflect all available information, and examines its implications for investors and market efficiency. The report discusses challenges to the EMH, such as the role of behavioral finance and market anomalies, and provides a critical evaluation of the theory's strengths and limitations. It also considers the practical applications of the EMH in financial markets, including its use in securities litigation. The report concludes by summarizing the advantages and disadvantages of the EMH, and its relevance in the context of contemporary financial markets.

Finance and investment
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Contents
Finance and investment...................................................................................................................1
Introduction......................................................................................................................................3
Main body........................................................................................................................................4
Conclusion.......................................................................................................................................5
References........................................................................................................................................6
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Introduction
The effectual market Hypothesis is one of the theory that is considered to be in the central
proposition of finance since past years. This is considered to be one of the most studied
hypothesis that relates to the social science and is subject financial application at large. It
contains five statistical analysis so as to provide the contrary convictions. The EMH is also
alternatively known as efficient market theory. This helps in reflecting that the share price of the
company reflects all the information and generation of consistent alpha is identified to be
impossible. The present report is founded on the analysis of EMH and various challenges to the
theory.
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Main body
The efficient market hypothesis is considered to be one of the highly controversial and disputed
theory. As the theory is considered to be used for researching for the undervalued stock and
making the prediction of the trend through using the fundamental and the technical analysis and
hence this is considered to be controversial to use. As this is considered that neither technical nor
the fundamental analysis helps in identifying risk adjusted excess returns but only risk
adjustment can be result from the same. This is concluded through this theory that price of the
stock reproduces all the obtainable information about the different fundamental value. Through
this theory the implication can be considered where the investors can extent the speculative
trading and identify it to be as costly, this is considered that the speculative is considered to be
loser game (Hamid, et. al., 2017).
There are various challenges that are face by EMH and it is considered to be very difficult to
follow the same. The theory is disputed in both the empirical and the theoretical manner. Here
this is considered that behavioural psychology is considered to be having stock market trading
which is considered to be more promising aspect for the same which is one of the most effective
alternative to the EMH process. This also identified that EMH anomalies and considers the
refusal of the capital asset assessing model. In the EMH model is considered to be working on
the shares which are neglected and the stocks that have high book to low market value. This
could be explained in the better manner through the use of CAPM model. This could also be
considered through the example of Bitcoin where the EMH model is not able to provide the risk
impact on the same. various researchers provides the EMH is not considered to be accurately
complete and is not relevant for all the cases, this can be considered as a fact where the value
investors outperform in the broader market over and above the long periods of time. This is also
considered that where the face value is taken the theory generates a banal claim where the
regular investor would not beat the market average which is considered to be a tautology.
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Conclusion
The above discussion provides the conclusion where this is seen that the BMH theory is
considered to be having various advantages and disadvantages. This is analysed that the theory is
applied mostly in the field of the securities class actions litigation. On the other hand there are
various criticism of the theory which is based on behavioural finance theory.
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References
Hamid, K., Suleman, M. T., Ali Shah, S. Z., Akash, I., & Shahid, R. (2017). Testing the weak
form of efficient market hypothesis: Empirical evidence from Asia-Pacific markets. Available at
SSRN 2912908.
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