The Informational Efficiency of the Stock Market

Since the stock market existed, people have tried to develop a model that serves as a useful guide, reflecting as a guide to understanding how the market works. The concept of market efficiency is a widely accepted key assumption that has evolved since the Eugene Fama market efficiency hypothesis of 1970. Economist's market efficiency term is also a well-known term, which refers to the efficiency of the stock market, more precisely the efficiency of operation focusing on the information efficiency of the stock market.

An important issue among stock market investors is whether the market is effective, that is, whether it always reflects all information provided to market participants. The Efficient Market Hypothesis (EMH) claims that all stocks are fully priced according to their unique investment characteristics and that all market participants have the same knowledge. At first glance it may be easy to see some of the deficiencies of efficient market theory Eugene Fama created in the 1970s. At the same time, however, it is important to explore its relevance in the current investment environment. (For details on how to read the background, please see Market Efficiency.)

Eugene Fama did not think that his effective market will continue to be 100% efficient. Of course, the market can not necessarily achieve perfect efficiency because stock prices take time to respond to new information announced by the investment community. However, the effective assumption does not strictly define the time it takes for the price to return to fair value. Furthermore, in an effective market, random events are totally acceptable, but when prices return to normal they are always resolved.

The premise of the Effective Market Theory (EMT) is that, considering the efficiency of information technology and market dynamics, the value of regular investment shares always reflects the actual value of the stock accurately. Treasury managers can not capture the sale of stocks and bonds to utilize "internal" information, and the price will not fall due to the sale of stocks and bonds. . However, the information technology and the dynamics of the market are based on the activities of the general people and various organizations, neither organization has provable validity and consistency. Therefore, we have the basic contradiction of EMT: the theory based on objective mechanical efficiency can be supported when applied to subjective human inefficiency Is it?