Efficient Market Theory suggests that in every financial market the flow of information is very efficient and this is reflected in the price of the share at which it is being traded. As we know that the price of the share floating in a market is not only dependent upon the company name printed and the information about the company in the balance sheet and other financial statements available to the public (Baghestani, H., 2009). In fact government and political stability, inflation, interest rates, treasury bills and several more factors determine the price at which any particular share is sold or bought at. Information about all these factors is always available to every investor in the market, be it the buyer or the seller.
Moreover this information is available in an effi...
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...ormation regarding the dynamics of the market and if this holds true then a financial market can never collapse. However in real world we face event like that of the 2007 global financial crisis that decelerated the global economic progress a great deal and once prosperous economies like the US ended up finding themselves in a state of panic where the poverty rose above all the previous levels and unemployment hiked to intolerable levels. Furthermore, the interest rates in the United States fell to a dreadful 1% during this crisis leading to falling savings in its economy. Hence we can conclude that Efficient Market Theory presents a weak argument to define market place dynamics. However if a combination of Efficient Market Theory and Behavioural Finance is utilized to predict market place dynamics then this would be defined as an efficient and effective approach.
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