Market Efficiency

Market Efficiency In simple microeconomics, market efficiency is a fair estimate of the actual value of an investment. The stock price can be larger or smaller than the actual value until these deviations become arbitrary. Efficiency of the market indicates that even if investors get accurate internal information of any kind, they can not surpass the market. Fama (1988) defines three levels of market efficiency. Immediately it reflects inefficient asset prices and all the information on the previous price completely.

This article is in three parts. Section 2 is a review of market efficiency. Market efficiency, various forms of market efficiency, and a brief history of demonstration testing of market efficiency are stated. Further discussion of criticism of EMH and behavioral finance. Section 3 summarizes this task. Financial and economic experts are adopting the concept of market efficiency. Fama (1970) presented a comprehensive overview of the theory and evidence of market efficiency from theory to empirical research. He pointed out that most of the empirical research was done before the development of the theory.

What is familiar with market efficiency and general explanation is that market efficiency is measured by comparing "production / energy" and "cost / output". In other words, measure the speed and accuracy of the market response to new information. The cumulative impact of the information we receive as news suggests the basic value of the asset. If the news item is not random, or if it depends on early news, it is not at all news, so continuous news items need to be random. If the high-speed price reflects all the information, ie the market is valid, the price fluctuates randomly.

Market efficiency refers to the rate at which commodity markets respond to market prices and incorporate new information into market prices. Good information leads to effective production and distribution decisions. Markets with high market efficiency react quickly to new information. Since the ability to "defeat" the market of the goods procurement department is limited, it is unlikely that a long-term procurement mechanism will be implemented in a more efficient market. In inefficient markets, the product purchasing department may have an asymmetric advantage of information and may implement a forward purchasing mechanism such as a forward purchase or a forward contract before the market responds.