Efficient Market Hypothesis Evidence From Karachi Stock Exchange

The concept of 'efficient market hypothesis' was introduced by Eugene Fama in mid-1960s. According to this concept, the intense competition in the capital market leads to fair pricing of debt and equity securities. The concept is based on the reflection of relevant information in market prices of the securities. If only past information is reflected in 'weak-from efficient markets; past as well as present information is reflected in 'semi-strong form efficient markets'; past, present, and future information is reflected in 'strong-form efficient markets'.
Efficient market hypothesis has profound implications for corporate finance and investment management.
Implications for corporate finance
1. Managers cannot fool the market through creative accounting.
2. Firms cannot successfully time issues of debt and equity.
3. Managers cannot profitably speculate in securities market.
4. Managers can reap benefits by paying attention to market prices.
Implications for investment management
1. If the market is efficient in weak-form, investors can not obtain abnormal returns by analyzing relevant historical information about the securities. However, it is possible to obtain abnormal returns by analyzing current information and future information. Thus, investment tools like filter strategy, technical analysis will not be effective. Fundamental analysis will be an effective approach for investment management.
2. If the market is efficient in semi-strong form, analysis of relevant historical and current information is of no use for gaining abnormal returns. Only access to future information will give abnormal returns. Thus, filter strategy, technical analysis, and fundamental analysis will not be effective for investment management.
3. If the market is efficient in strong-form, analysis of past, present, and future information is of no use to gain abnormal returns. Random selection of the stocks based on defined returns or risk will be the best approach for investment. Portfolio investment will be the only way to maximize returns for given level of risk or minimize risk for given level of returns.

Efficient-market hypothesis - Wikipedia

That Time Buffett Smashed the Efficient Market Hypothesis


In its strongest form, the EMH says a market is efficient if all information relevant to the value of a share, whether or not generally available to existing or potential investors, is quickly and accurately reflected in the market price. For example, if the current market price is lower than the value justified by some piece of held information, the holders of that information will exploit the pricing anomaly by buying the shares. They will continue doing so until this excess demand for the shares has driven the price up to the level supported by their private information. At this point they will have no incentive to continue buying, so they will withdraw from the market and the price will stabilise at this new equilibrium level. This is called the of the EMH. It is the most satisfying and compelling form of EMH in a theoretical sense, but it suffers from one big drawback in practice. It is difficult to confirm empirically, as the necessary research would be unlikely to win the cooperation of the relevant section of the financial community – insider dealers.

Efficient Market Hypothesis: Is The Stock Market Efficient?

The Efficient-Market Hypothesis and the pdfOct 2011 This paper argues that the critics of EMH are using a far too restrictive momentum in the stock market, many studies have shown evidence ofLo, “Efficient Market Hypothesis” pdfThe efficient markets hypothesis (EMH) maintains that market prices fully extensively to theoretical models and empirical studies of financial securities decade after Samuelson s (1965) and Fama s (1965a; 1965b; 1970) landmark papers,Market Efficiency, Market Anomalies, Causes pdfDiscusses the opinion of different researchers about the possible causes of anomalies, According to efficient market hypothesis markets are rational and prices of stocks This review paper explains the market anomalies in both aspects:

The classic statements of the Efficient Markets Hypothesis (or EMH for short) are to be found in Roberts (1967) and Fama (1970).
12/01/2011 · Efficient Market Hypothesis: Is The Stock Market Efficient

Thus the efficient market hypothesis may well fail if there is ..

Regardless of whether or not one believes that markets are efficient, or even whether they are efficient, the efficient market hypothesis is almost certainly the right place to start when thinking about asset price formation. One can then consider relative efficiency.

heart of the academic nostrum known as the efficient-market hypothesis.”2 In a ..

An evaluation of the efficient market hypothesis

An empirical study on efficient market pdfThe objective of this paper is to study the efficiency of Indian stock markets Key words: Efficient market, Efficient market hypothesis, Random walk theory, RunsTesting the Efficient Market Hypothesis - The Department pdfBeen abandoned, and current research now focus on behavioral finance when Lawrence Summers published his papers on the EMH (see [Summers, 1986a]Market Efficiency, Market Anomalies, Causes pdfDiscusses the opinion of different researchers about the possible causes of anomalies, According to efficient market hypothesis markets are rational and prices of stocks This review paper explains the market anomalies in both aspects:The Efficient Market Hypothesis and its Critics - pdfThus, neither technical analysis, which is the study of past stock prices in an This paper examines the attacks on the efficient market hypothesis and the beliefEfficient-market hypothesis - WikipediaEfficient-market hypothesis (EMH) is a theory in financial economics that states that an asset s While event studies of stock splits is consistent with the EMH ( Fama, Fisher, Jensen, and Roll, 1969), other The paper extended and refined the theory, included the definitions for three forms of financial market efficiency: weak,

Efficient market hypothesis and fraud on the market theory a new perspective for class actions

The efficient markets hypothesis ..

The intrinsic value of an asset is implied by the cumulative impact of information we receive as news. Successive news items must be random because if an item of news were not random, that is, if it were dependent on an earlier item of news, then it wouldn't be news at all. After all, news — by definition — is new. If the rapidly price reflects all information (i.e. the market is efficient), then the price will fluctuate randomly.