Essay on Market Efficiency - 2044 Words

Market Efficiency In simple Microeconomics Market efficiency is the unbiased estimate of the actual value of the investment. The stock price can be greater than or less than true value till the time these deviations are arbitrary. Market efficiency also states that even though investor has got any kind of precise inside information will be unable to beat the market. Fama (1988) has defined three levels of market efficiency: 1. Weak-form efficiency Asset prices instantly and completely reflect all information of the previous prices. This means future price variations can’t be foreseen by using preceding prices. 2. Semi-strong efficiency Asset prices entirely reflect all of the publicly available data. Therefore, only investors with†¦show more content†¦Campbell (2000) concludes that despite difficulties, the proof for predictability has rational significant level of statistics. Most financial economists have accepted that aggregate returns do contain an important predictable element. 1. Dividend Yield Dividend price ratio of a stock is dividend received during a period divided by the price of the stock at the end of the period. Dividend yield is mathematically calculated by dividing the dividends received during the period by the price of the stock at the beginning of the period. Dividends yield is the measure of cash flow for each pound invested in an equity position. Supposedly, there are two companies C1 and C2. Both pay annual dividend of  £1. Stock of C1 and C2 is traded at  £10 and  £20 respectively. Then C1 has 10% dividend yield whereas C2 has only 5% dividend yield. The investor will surely prefer investing in C1 rather than C2. According to Fama (1988)’s certainty model dividend per share for a period grows at a constant rate and market interest rate which links future dividends to stock price is also constant. D(t)/ P(t-1) = r-g But, according to Goyal (2003) it has been observed that over the period dividend price ratio have become non-stationary. Neither the dividend-yieldShow MoreRelatedImproving The Efficiency Of The Market1198 Words   |  5 PagesTo improve the efficiency of the market, CRAs act as reliable information providers to collect and process information pertinent for the assessment of credit quality, and disseminate the results to financial market participants such as investors and portfolio managers. The rating information provided by CRAs will reduce information asymmetries in the market, and this will lead to a higher level of investor confidence, increased activities in the market and lower transaction costs. To begin withRead MoreThe Efficiency Of Stock Market Essay1814 Words   |  8 Pages2.1 Efficiency of Stock Market In the Stock Market, More number of efficiency is studied. Weak form efficiency of Indian capital market studies are supported.(Prusty , 2007 ; Mittal and Jain , 2009).Weak form efficiency of Indian capital market do not support by researcher (Pandey , 2003 ; Mishra , 2009). 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