• Objective: Measure the expected return from various investments based on future market conditions, includes the Efficient Market Theory.

We have seen how stock prices move up and down. Pr & Gamble Company (stock symbol: PG) stock price was as low as $70.73 and as high as $103.68 in just one year, from March 2018 to March 2019. The Efficient Market Theory can explain these price changes.

This theory looks at the effect that new information has on prices. Information develops randomly; some days there will be a lot of information and some days there will be very little. Some information will be positive for some companies yet negative for others.

This randomness of information is called the Random Walk. It is the information development that is random, not the stock price changes. How the market processes or incorporates the information into the valuation of stocks, bonds, and other securities is the core of the Efficient Market Theory. You will be examining how the Efficient Market Theory explains price changes and your ability to consistently earn a return in the financial markets.

• After studying the concept of market efficiency, explain it in your own words.
  • Why does this theory depend upon the concept of an efficient market?
  • How does this theory explain changes in market prices of securities?
  • How does this theory impact your expectations when you invest?
  • Why cant you consistently beat the market?

DETAILED ANSWERS PLEASE