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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 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 HypothesisThere 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. I am looking forward to your DQ postings related to the EMH……………do a Google search on the EMH, and you will be inundated with information on this subject.Efficient Market Hypothesis (Continued)
So one can imagine, if the EMH has any truth to it, and you are an individual stock trader or like to watch and make decisions about individual stocks instead of using the services of mutual funds that place groups of stocks into a fund, it would seem like you have to follow what is going on with the Company almost every day……………these days, including what is being said about the Company (true or false) on Facebook; Twitter; etc. in order to assess the potential impact of what is being said there on the stock price. Is this also the EMH at work, or is this the behaviorist argument or a combination of both? How has social media changed both theories are some food for thought….