Efficient Market

Efficient market hypothesis is the hypothesis about the information that is relevant information that is immediately and fully reflectsed in the market value of the securities exchange. There are low, medium and strong forms of efficient market hypothesis. Efficient market hypothesis can be stated as follows: the market is efficient to any information if it is immediately and fully reflectsed in the price of the asset. That makes this information useless for windfall profits. This paper is aimed to discuss three types of efficient market hypothesis.

Weak form of efficiency refers to the situation when the market value of the asset is fully reflects past information concerning the asset (public at the time the information about the past state of the market, particularly on the dynamics of the market value and trading volumes of financial assets). This form of market efficiency means that, at least, the current market price of the stock reflects its own last price. In other words, the study of past prices in the attempting to detect incorrectly priced stock is a waste of time.

 

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Semi-strong form of efficiency occurs when the market value of the asset is fully reflects not only the past, but also the public information (the current information that is publicly available at the time provided in the current press, company reports, public servants, analytical forecasts, etc.). This means that if the market has semi-strong efficiency, all public and past information is reflected in market prices. The reason for this debate is the fact that experts in securities that attempting to detect incorrectly priced stocks use financial statements of companies that is a - waste ofing time, sincebecause this information is already reflected in the current market price.

Strong form of efficiency is the one where the market value of the asset is fully reflectsing all the information - past, public and internal (inside information, which is known to a narrow circle of peoplersons because of ithis official position, or other circumstances).

Efficient market hypothesis is one of the central ideas of the modern theory of finance. Concluding In conclusion, it is necessary to note that the form of efficiency is determined on the basis of what information is used -– the one that refersspeaks tof the past state of the market, or the one that is publicly available in real time, or the one that is known to a narrow circle of peoplersons because of their position or other circumstances (internal information).