Finance Assignment: Efficient Market Hypothesis and Portfolio Managers

This assignment provides an analysis of the Efficient Market Hypothesis (EMH), exploring its three forms: weak, semi-strong, and strong. It explains how EMH states that security prices reflect all available information and discusses its implications for investment analysis, including its stance on technical analysis. The assignment highlights the roles of portfolio managers in an efficient market, including identifying risks and returns, tailoring portfolios to investor needs, and managing investment strategies. The analysis also references key literature supporting the concepts discussed. This assignment is a valuable resource for understanding the core principles of finance and investment strategy.

Accounting
Assignment

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Table of Content
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Submitted by –
Date – 12th December 2018

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Analysis........................................................................................................................................................2
References...................................................................................................................................................4
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Analysis
1. The three different forms of efficient market hypothesis are ‘weak’, ‘semi-strong’ and ‘strong’.
The weak form indicates that the prices of the traded shares in the market reflect the past
period related information to these shares. Most of the information that is provided is
redundant and not current. The semi strong reflects that the prices relates to the current
scenarios and automatically updated to reflect the new publicly available information. The
strong states that the prices reflect any change that occurs immediately and often reflects the
insider information also that is related to trading of shares in the market.
2. Efficient Market Hypothesis, is a theory that states that the prices of the securities indicate all
the available information and correct information about the shares. Efficient Market Hypothesis
states that information available can be used as a method for investment analysis, and to take
important decisions with respect to investment as they can study the movement of the shares
and can accordingly decide which share is functioning better and which share they should invest
in. It does not support technical analysis as it believes that past information cannot be used to
take decisions with relation to the present scenarios and hence we see that it does not support
technical analysis (Belton, 2017). The efficient market hypothesis is a scenario which is relevant
in a very perfect scenario and that is not always correct. So, we see that in such kind of scenarios
even though it is believed that share prices are indicating the information related to the shares,
most of them there are a lot of insider information that is not available. Thus, we see that
technical analysis is not considered and insider trading affects the same and thus it has an
implication on the investment analysis that is done through these prices.
3. Portfolio managers have many important roles to play in an efficient market hypothesis
scenario. The most important responsibility includes identification of the risk and returns that
are associated with different kind of portfolios. The portfolio managers can tailor the portfolio to
suit the needs of the investors (Iggers, 2018). The managers also need to study the constraints
that are associated with investors like liquidity, time horizon, laws and regulations etc. It helps in
development of such portfolios that are well diversified with limited risk associated with them.
Thus, it helps in selection of a rational portfolio that suits to the need of the company. The
managers help in defining the capital market allocation, the investors need to choose a market
based on their overall needs that can give them the desired returns. They also help in
implementation of the chosen strategy for the companies (Borit & Olsen, 2012). They also help
in updating the old strategies related to the projects so that they can fulfil the current needs.
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The managers also help in reducing the buy hold cost related to the transactions so that the
overall profit for the investors is more and they are able to manage their investments in a better
way (Kaufmann, 2017).
References
Belton, P., 2017. Competitive Strategy: Creating and Sustaining Superior Performance. London: Macat
International ltd.
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Borit, M. & Olsen, P., 2012. Evaluation framework for regulatory requirements related to data recording
and traceability designed to prevent illegal, unreported and unregulated fishing. Marine Policy, 36(1),
pp. 96-102.
Iggers, J., 2018. Good News, Bad News: Journalism Ethics And The Public Interest. s.l.:s.n.
Kaufmann, W., 2017. The Problem of Regulatory Unreasonableness. First ed. New York: Routledge.
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