Efficient Market Hypothesis: A Critical Review of Theory and Its Implications for Investment Decision

Author: Anju Garg

Abstract:
The efficient market hypothesis is concerned with the behaviour of prices in asset markets. The term ‘efficient market’ was initially applied to the stock market, but the concept was soon generalized to other asset markets. The efficient market hypothesis states that asset prices in financial markets should reflect all available information; as a consequence, prices should always be consistent with ‘fundamentals’. In this paper, an attempt has been made to analyze the critical review of theory of Efficient Market Hypothesis and its implications for investment decision. The present study is entirely based on the availability and utilization of secondary data and literature. The study made use of various articles published in Journals and Newspapers of national repute. Some reputed handbooks related with finance are also be used. Our aim is to discuss the main ideas behind the hypothesis, and to provide a guide as to which of its predictions seem to be borne out by empirical evidence, and which do not. In examining the empirical evidence, we concentrate on the stock and foreign exchange markets, though much of the discussion is relevant to other asset markets, such as the bond and derivatives markets.

Keywords:Efficient market hypothesis, Filter point, asset markets fundaments, Derivatives markets

DOI:

International Journal of Trade & Commerce (Vol: 6 Issue:2)