ConceptClip - Efficient Markets

>> Efficient Markets. The name can be a little misleading because we are used to efficient meaning that somebody does their job well without a lot of waste. But when we say a market is efficient, it has a more specific meaning.

This idea basically encapsulates a set of conditions that the market has to meet in order to be considered efficient:

1. The first condition is that efficient markets have to be in equilibrium. If you think back to Economics 101, this is where the supply and demand curves intersect, which means supply equals demand. In the case of financial markets, that means that for any given security, the amount being sold and the amount that people want to buy, are pretty much equal. So there's no pressure to drive prices either up or down. Prices are inherently stable at this equilibrium point.
2. The second condition is that securities are trading at their intrinsic values or, in other words, what they are actually worth. That means that any given security's price should only be based on its predicted future cash flows and the riskiness of the investment. Of course intrinsic value can't be measured directly. It's not something you can see or touch. In fact, that's what the entire field of security analysis is based on -- the need to estimate the actual value of a company or stock based on all the available information. And that is the big assumption here -- that everybody participating in the market has instant access to all publically available information and accounts for it reasonably in their evaluation of a security's worth. So if Microsoft announces that they are releasing a new version of Windows, then everyone interested in selling or buying shares of Microsoft would find out about it at the same time and they would all correctly factor this new information into their estimation of what the stock is worth.

So that's the idea of an efficient market -- one that is in equilibrium and where the securities are priced at their intrinsic values. This is the ideal condition that regulators like the SEC seek to enforce. By restricting things like insider trading and other forms of imbalance, they attempt to make the markets more fair by making them as efficient as possible.

Using the Above, write a 500 word topic discussion further explaining the concept preferably using 3 valid sources of reference