Efficient Market Hypothesis Essay

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Efficiency of financial markets is one of the main topic in finance area for researching and testing. Many economist has done lots of research on this important area and intent to find out a best way to illustrate the outcome to define the financial market. In recent years, the research and the testing has become the basis of the investors to examine the investment stages. This move is important since the market can change in any time.

The concept of the Efficient Market Hypothesis is defined as there are many potential investors in the market who try to compete with each other by predicting the future of the stocks of the company or any other financial securities, which the information of the company were available for all the investors and the price of the securities and the stocks are reflected to the information that the company disclosure correctly. (Eugene. F , 1965)

Efficient Market Hypothesis can be divided into three different stages, weak form of efficiency, semi-strong form of efficiency and strong form of efficiency. By examine the researches and testing, this essay aims to compare three different form of efficiency market hypothesis and the empirical studies which have conducted to assess the validity of each forms.
In this essay, it will contain three main part to illustrate the researches and compare between the three forms of efficiency included the Random Walk Theory. In first, we will examine about the Random Walk theory and see how it will affect the stock price in weak form of efficient markets hypothesis. Follow by the evaluation of the empirical studies in the weak form of efficiency.
Secondly, explain and compare the semi-strong form of the efficient market hypothesis differs from the weak ...

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However, insider trading is illegal in recent year which restricted by the law since it is not fair to the other small investors. (Seyhun, 1986)

Efficient Market Hypothesis is an important step on predicting the future price of the stocks or securities in short-term. By applying the new information in order to react to the business can help to identify the direction of the stock price and gain return. Although the result may fail the investor in long-run but for the investors who intend to invest in short-run are still useful. React to the favourable or unfavourable information for the company can help to adjust the overprice or under priced stocks in order to maintain the balance in the market. Since the EMH can still be the basis of the prediction of the stock price, EMH is still viable for the investors to study and examine before the investment.
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