Types of Informational Activities (Efficient Market Hypothesis)

Types of Informational Activities (Efficient Market Hypothesis): "My summary for you"

PART: 2

Fama (1970), in his article about the efficiency of capital markets at prices reflecting market in terms of measuring the degree of market efficiency tests are divided into 3 groups:

a)     In weak efficiency form, investors determine the investment policy and return on investment is achieved if only they use historical data and information based on the market. Whether using past price movements in the market getting a good return can not be above normal, we can say that a market is weak form efficient.

b)    In Semi-active efficiency forms, it is important that to give data about background in formations of the company by the internal factors that work in that company and information must be provided by someone who knows what to do with the company. When conditions are right, this semi-active investors can invest freely in markets, and may provide benefits. In addition to background information in market prices, if the market reflects financial statements, dividend payments and corporate mergers, takeovers, P / E (price / earnings) relating with ratio of information and also all of the information for political and macro economic events, we can say Semi-active efficiency form market which is called efficient market.

c)     The last form is fully (strong-form) efficient market forms. In this manner markets, on the outside of the past data and corporate information, investors need to reach all different information. Thus investors draw their investment profile. Moreover, market prices reflect all information is considered as strong form efficient markets. Basically, whatever the matter grouping of test events, evaluation of all market activity, when new information comes to the market, prices will change with this new information and it is based on prices will be in motion randomly. If adjustments in price are slower than the information on emerging markets, asset prices will not reflect the information exactly. Secondly, whenever prices don’t act randomly, investors who discern regularities in price movements would yield an opportunity to gain above normal. Therefore, it is accepted for this situation that Efficient Market Hypothesis is violated. As stated Malkiel in 1990, Efficient Market Hypothesis does not tell any investor can beat the market contrary to assumptions. Just the opposite, some investors may beat the market ever and anon but also it is asserted that this can not be performed by the same group investors.