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Valuation by Rajesh Kumar

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3

Efficient capital markets and its implications

Abstract

In efficient capital markets, the share prices reflect all new information accurately and in a timely manner. The efficient market theory (EMT) states that the price of an asset reflects all relevant information that is available about the intrinsic value of the asset. Investors in an efficient market cannot earn abnormally high risk-adjusted returns. Weak form of EMT states that the current stock prices fully reflect all stock market information that can be obtained by examining history of past prices, trading volume, and transaction by market makers. In a semi-strong efficient market, stock prices reflect all publicly available information about economic fundamentals of the firm. In strong ...

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