Analysis of the Efficient Market Hypothesis: ‘Arguments about a company’

Analysis of the Efficient Market Hypothesis: ‘Arguments about a company’ 
(My summary for you)

PART: 3

Finance Researchers have been doing efficacy tests in a long-term period about the Efficient Market Hypothesis and they try to find the power that determines the prices of the risky assets and for this purpose,  they develops these models which shows the relationship between  the risk and the expected return rates. However, asset pricing model’s prediction results which try to explain the expected returns on risk-return relationship have been done but they couldn’t explain expected returns. Findings obtained in this type of works are inconsistent results to either asset assumptions of pricing models of Efficient Market Hypothesis or the principles of investment management. Therefore, we explain them as Anomaly.

Historical data of an asset is analyzed by diagrams and forecasting about the future is called Technical Analysis. Especially at the stock markets, it is possible that not to straggle from the effectiveness of weak form market. These kinds of deviations are in contradiction with the emergence results of efficient market hypothesis formulated is called Anomaly. There are different types of anomaly and in these anomalies; the test of the Calendar/Seasonal Anomaly is be one of the important tool to investigate to weak form efficiency of the market so we can see that Technical Analysis Method is not useful in the weak form market efficiency of Effective Market Hypothesis because of the anomalies.

Most of the investigations’ aims by examining anomalies are to get an idea about activity of market. The empirical findings which contradict Effective Market Hypothesis or Random Walk Model are called an anomaly. Anomaly is separated into main types which are Seasonal Anomaly (Depended of Time) or Non-Seasonal Anomaly (Non-Depended of Time). Some of the Seasonal Anomaly Types are ‘Intraday Anomalies, Anomalies relating to the days, Anomalies relating to the months, Anomalies relating to the Holidays, Anomalies relating to the Company Majority or Minority, Price/Earning Effect Anomalies, Dividend Profit Effect Anomalies…etc.