Question
Ch 02- Assignment - Financial Markets and Institutions Back to Assignment Attempts Average /3 8. The efficient markets hypothesis The concept of market efficiency
Ch 02- Assignment - Financial Markets and Institutions\ Back to Assignment\ Attempts Average
/3
\ 8. The efficient markets hypothesis\ The concept of market efficiency underpins almost all financial theory and decision models. When financial markets are efficient, the price of a security - such as a share of a particular corporation's common stock-should be equal to the present value estimate of the firm's expected cash flows discounted by its appropriate rate of return (also called the intrinsic value of the stock).\ Almost all financial theory and decision models assume that the financial markets are efficient. The informational efficiency of financial markets determines the ability of investors to "beat" the market and earn excess (or abnormal) returns on their investments. If the markets are efficient, they will react rapidly as new relevant information becomes available. Financial theorists have identified three levels of informational efficiency that reflect what information is incorporated in stock prices.\ Identify the form of capital market efficiency under the efficient market hypothesis described in the following statement:\ Current market prices reflect all information contained in past price movements.\ This statement is consistent with:
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