# What is the Efficient Market Hypothesis?

This strategy difficult to implement.**"You Can Outsmart the Market"**

Anomalies

The Efficient Market

Hypothesis

“The price of securities fully reflect available

information”

The efficient market hypothesis is based on the fact that investors are rational, but they are irrational

True or False?

Impossible to beat the market?

1.

## CFA Level 1 - The Efficient Market Hypothesis

### Learn the basics of the efficient market hypothesis

Market participants

Sophisticated investors who placed such a high value should have done better job

Irrational reliance of stock price on its auditors’ compromised certification

The Efficient Market Hypothesis

1.

### Efficient Market Hypothesis; Economics; ..

Mark to Market Accounting

Under the method, it is possible to book the entire estimated value for all future contracted years on the day the contract was signed

It brings mismatch between profit and cash

Enron abuse it at the area where the value was even more subjective and tempting

The Efficient Market Hypothesis

2.

The failure of market

It fail to assess adequately the earnings prospects at Enron

Price should have reflected diminished value of Anderson’s certification, complicated accounting.

3.

## excess of the amount predicted by the efficient market hypothesis ..

Financial Markets Understanding Interest Rates; The Behavior of Interest Rates; The Risk and Term Structure of Interest Rates; The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis.