The Ascent of Market Efficiency

2020 ◽  
Author(s):  
Simone Polillo
Keyword(s):  
Data Analysis ◽  
Financial Markets ◽  
Market Efficiency ◽  
Financial Economics ◽  
Efficient Market Hypothesis ◽  
Historical Narrative ◽  
Bibliometric Data ◽  
Efficient Market ◽  
Academic Networks ◽  
Better Than

This book weaves together historical narrative and quantitative bibliometric data to detail the path financial economists took in order to form one of the central theories of financial economics—the influential efficient-market hypothesis—which states that the behavior of financial markets is unpredictable. As the notorious quip goes, a blindfolded monkey would do better than a group of experts in selecting a portfolio of securities, simply by throwing darts at the financial pages of a newspaper. How did such a hypothesis come to be so influential in the field of financial economics? How did financial economists turn a lack of evidence about systematic patterns in the behavior of financial markets into a foundational approach to the study of finance? Each chapter focuses on these questions, as well as on collaborative academic networks, and on the values and affects that kept the networks together as they struggled to define what the new field of financial economics should be about. In doing so, the book introduces a new dimension—data analysis—to our understanding of the ways knowledge advances.

scholarly journals PENGUJIAN EFISIENSI PASAR BENTUK LEMAH PADA PASAR MODAL INDONESIA PERIODE 2014-2017

2019 ◽  
Vol 11 (2) ◽  
pp. 178-190
Author(s):  
Eka Yulianti ◽  
Dwi Jayanti
Keyword(s):  
Financial Markets ◽  
Market Efficiency ◽  
Capital Market ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Present Value ◽  
Efficient Market ◽  
Current Consumption ◽  
Past Data ◽  
Random Walk Theory

Investigate the current consumption of assets for the benefit of the future. The investment canbe done by only one in the capital market which means that the investment is invested in the initialcapital assets. Profit or the same value is aimed at the investor's main interest in investing not releasedfrom risk money. Such risks are inevitably uncertain about information movement in the stock market.Relevant information available can be used as a basis for making decisions when to buy shares orretain holdings of shares. In addition, information can also be a basis for consideration when to releaseshares or not to buy shares at all. This information relates to Efficient Market Hypothesis (HPE) whichcontinues to research in financial markets. One of the forms of the Efficient Market (HPE) hypothesis isthat market efficiency is a weak form that is examined in this study. This market efficiency form isrelated to random walk theory which assumes that past data is not related to present value.

scholarly journals Evidence for and Against the Validity of Efficient Market Hypothesis

2018 ◽  
Vol 56 (3) ◽  
pp. 369-387
Author(s):  
Miljan Leković
Keyword(s):  
Market Efficiency ◽  
Financial Market ◽  
Efficient Market Hypothesis ◽  
Strong Form ◽  
Efficient Market ◽  
Market Anomalies ◽  
Development Path

Abstract The concept of an efficient financial market, in literature known as efficient market hypothesis (EMH), has had a long and difficult development path from the idea itself to its final conception, as one of the central paradigms in modern finance. It has been tested and critically reviewed for decades, and the two basic types of problems it has encountered are theoretical paradoxes and market anomalies. The aim of the paper is to examine the validity of EMH through various financial market efficiency tests and the results of previous research. The intention is to answer the question of whether, despite theoretical paradoxes and market anomalies, the notion of validity can be attributed to the concept of an efficient financial market. In this regard, the paper presents plenty of evidence for and against the validity of weak, semi-strong, and strong form of EMH, to conclude that, even after more than half a century of research, financial literature has not reached a consensus on the presence or absence of the validity of this hypothesis.

scholarly journals An Empirical Analysis of the Efficient Market Hypothesis in China’s Stock Market

2021 ◽  
Vol 4 (3) ◽  
pp. 1-5
Author(s):  
Jiaxuan Xu
Keyword(s):  
Stock Market ◽  
Financial Markets ◽  
Empirical Research ◽  
Empirical Analysis ◽  
Stock Prices ◽  
Efficient Market Hypothesis ◽  
Security Market ◽  
Stock Trading ◽  
Efficient Market ◽  
Basic Framework

The efficient market hypothesis is one of the most important theories in finance. According to this hypothesis, in a stock market with sound laws, good functions, high transparencies, and extensive competitions, all valuable information is timely, accurately, and fully reflected in the trend of stock prices including the current and future values of enterprises. Unless there are market manipulations, it would be impossible for investors to gain more above the average profits in the market by analyzing former prices. Since the efficient market hypothesis has been introduced, it has become an interest in the empirical research of the security market. It is one of the most controversial investment theories and there are many evidences supporting and also opposing this hypothesis. Nevertheless, this hypothesis still holds an important status in the basic framework of mainstream theories in modern financial markets. By analyzing simulated investment transactions in regard to stock trading of three different enterprises, this paper verified that the efficient market hypothesis is partially valid.

scholarly journals Martingales, Efficient Market Hypothesis and Kolmogorov’s Complexity Theory

2011 ◽  
Vol 2 (6) ◽  
pp. 252-258
Author(s):  
Amaresh Das
Keyword(s):  
Time Series ◽  
Financial Markets ◽  
Stock Returns ◽  
Complexity Theory ◽  
Efficient Market Hypothesis ◽  
Market Theory ◽  
Efficient Market ◽  
Price Changes ◽  
Efficient Market Theory ◽  
Theoretical Considerations

Efficient market theory states that financial markets can process information instantly. Empirical observations have challenged the stricter form of the efficient market hypothesis (EMH). These empirical observations and theoretical considerations show that price changes are difficult to predict if one starts from the time series of price changes. This paper provides an explanation in terms of algorithmic complexity theory of Kolmogorov that makes a clearer connection between the efficient market hypothesis and the unpredictable character of stock returns.

Behavioral Finance Market Hypotheses

2017 ◽  
Author(s):  
Alex Plastun
Keyword(s):  
Financial Markets ◽  
Empirical Evidence ◽  
Behavioral Finance ◽  
Efficient Market Hypothesis ◽  
Efficient Market ◽  
New Concepts ◽  
Overreaction Hypothesis ◽  
Fractal Market Hypothesis ◽  
Behavioral Perspective

Although the efficient market hypothesis (EMH) is the leading theory describing the behavior of financial markets, researchers have increasingly questioned its efficacy since the 1980s because of its inconsistencies with empirical evidence. This challenge to EMH has resulted in the development of new concepts and theories. These new concepts reject the assumption of investor rationality. The most promising and convincing among these are the adaptive markets hypothesis, overreaction hypothesis, underreaction hypothesis, noisy market hypothesis, functional fixation hypothesis, and fractal market hypothesis. The chapter provides a brief description of these theories and proposes using a behavioral perspective to analyze financial markets.

Does annual report readability explain the accrual anomaly?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Ming Liu ◽  
Zhefeng Liu
Keyword(s):  
Market Efficiency ◽  
Annual Report ◽  
Efficient Market Hypothesis ◽  
Annual Reports ◽  
Accrual Anomaly ◽  
Efficient Market ◽  
Content Type ◽  
Market Friction ◽  
Unbiased Manner ◽  
Red Flag

PurposeThe purpose of the study is to investigate the possible role of annual report readability in accrual anomaly, shedding light on why investors fail to incorporate accruals information in a timely and unbiased manner beyond the original naive investor fixation explanation.Design/methodology/approachUsing five proxies of annual report readability and available data over 1993–2017, we investigate whether accrual overpricing is more severe when annual reports are less readable.FindingsWe find little (substantive) evidence of accrual overpricing among high (low) readability firms. The readability effects are contingent on the level of business complexity and earnings management.Research limitations/implicationsThis study extends the original naive investor fixation explanation and documents annual report complexity as a market friction in explaining the accrual anomaly, contributing to the mispricing vs risk debate and supporting the efficient market hypothesis.Practical implicationsLow readability of annual reports is a red flag to investors.Social implicationsThis study provides support for regulatory initiatives aimed at enhancing readability of corporate disclosures to address market frictions and improve market efficiency.Originality/valueAccrual anomaly has posed a challenge to the efficient market hypothesis. This study draws on and adds to the line of research indicating that annual report complexity is a friction erecting a barrier to transparency, hindering market efficiency. This study contributes to our understanding of the enigmatic accrual anomaly.

A Competitive Approach to Financial Issues

2014 ◽  
pp. 385-398
Author(s):  
Mustafa Okur ◽  
A. Osman Gurbuz
Keyword(s):  
Financial Markets ◽  
Asset Prices ◽  
Abnormal Returns ◽  
Efficient Market Hypothesis ◽  
Future Research ◽  
Financial Asset ◽  
Efficient Market ◽  
Finance Theory ◽  
Available Information ◽  
Financial Issues

Efficient Market Hypothesis (EMH) is a cornerstone in modern finance theory. Efficient market hypothesis states that it is impossible to make abnormal returns in financial markets because financial asset prices always reflect all available information. This chapter was undertaken in order to give a brief survey of modern finance theory by mainly focusing on the efficient market hypothesis. The authors also discuss the empirical foundations of the efficient market hypothesis. Finally, the main challenges to the efficient market hypothesis are introduced in order to point out a perspective for future research.

scholarly journals Do portfolio managers in South Africa consider human behaviour issues when making investment decisions or advising clients?

2009 ◽  
Vol 6 (3) ◽  
pp. 126-136
Author(s):  
JSG Strydom ◽  
JH Van Rooyen
Keyword(s):  
South Africa ◽  
Financial Markets ◽  
Behavioral Finance ◽  
Cognitive Biases ◽  
Investment Decisions ◽  
Efficient Market Hypothesis ◽  
Efficient Market ◽  
Economic Paradigm ◽  
Portfolio Managers ◽  
Available Information

The efficient market hypothesis is based on the assumption that individuals act rationally, processing all available information in their decision-making process. Prices therefore reflect the appropriate risk and return. However, research conducted regarding the ways that investors arrive at decisions when faced with uncertainty, has revealed that this is in fact not always the case. People often make systematic errors, the so-called cognitive biases, which lead them to less rational behavior than the traditional economic paradigm predicts. These cognitive biases have been found to be responsible for various irregular phenomena often observed in financial markets as (turbulence or, volatility, seasonable cycles, "bubbles", etc. Behavioral finance attempts to explain some of the changes in the financial markets that cannot be explained by the efficient market hypothesis. This research reviews some results from the behavioral finance and other related literature. A survey was also done to determine whether the most prominent portfolio managers in South Africa are aware of behavioral finance issues/models and consider the influence of cognitive issues when making investment decisions or giving advice to clients.

scholarly journals THE EFFICIENT MARKET HYPOTHESIS: A CRITICAL REVIEW OF LITERATURE AND METHODOLOGY

Ekonomika ◽  
2014 ◽  
Vol 93 (2) ◽  
pp. 7-23 ◽  
Author(s):  
Augustas Degutis ◽  
Lina Novickytė
Keyword(s):  
Stock Market ◽  
Market Efficiency ◽  
Capital Markets ◽  
Intrinsic Value ◽  
Weak Form ◽  
Efficient Market Hypothesis ◽  
Current Status ◽  
Efficient Market ◽  
Baltic Countries ◽  
The Baltic

The development of the capital markets is changing the relevance and empirical validity of theefficient market hypothesis. The dynamism of capital markets determines the need for efficiency research. The authors analyse the development and the current status of the efficient market hypothesis with an emphasis on the Baltic stock market. Investors often fail to earn an excess profit, but yet stock market anomalies are observed and market prices often deviate from their intrinsic value. The article presents an analysis of the concept of efficient market. Also, the market efficiency evolution is reviewed and its current status is analysed. This paper presents also an examination of stock market efficiency in the Baltic countries. Finally, the research methods are reviewed and the methodology of testing the weak-form efficiency in a developing market is suggested. 

Sign in / Sign up

Export Citation Format

Share Document