What does the efficient market hypothesis (EMH) say about securities prices, their reaction to new information, and investor opportunities to profit? What is the behavioral finance challenge to this hypothesis?
Do you personally believe the EMH argument or the behaviorist argument?
Introduction of DQ4
The efficient market hypothesis is an important concept, not only in Finance but also in this course. The behavioral finance challenge to the EMH is also very interesting and an important part of the reaction of stock markets to new information, both good and bad. Just look at the reaction of the stock market to the Malaysian Airlines airliner shot down………..the markets dropped significantly that day on a global basis, but the following day, they bounced back dramatically, wiping out most of the previous day’s gains.
Efficient Market Hypothesis
There are many empirically-based research studies proving, to the extent possible, that the EMH is real, and the market (stock market) efficiently reacts to new information, both good and bad, almost instantly when the information is released, or slowly over time, as the market ‘impounds’ the value of the information received into the stock prices.