What does an effective market hypothesis do?
The effective hypothesis on the market is the idea that markets quickly take new information. Generally speaking, he explains why a random person cannot make a guaranteed profit by picking up a business part of newspapers and buying shares in companies that seem to be doing well. According to the effective market hypothesis, all these reports will already be considered by the price of shares; Future events will unpredictably affect shares. Arbitration is a practice of guaranteed profit by using a certain mistake on the market. An example of arbitration would be to buy something at a low price when you know that you can sell it immediately for more money. The use of the Principle of Arbitration for Information provides an effective market hypothesis. The idea is that if the information is out there, it will be acting.
The strongest version of the effective market hypothesis predicts that the market will follow "random walk". This means that it predicts that at a given moment, any shares and the market as a whole are likely to increase as much as a decline. LongThe tendency of the market and all shares in it will be nothing but the accumulation of random decisions. Long -term trends should be impossible to identify. More precisely: As soon as trends become identifiable, they disappear because investors buy and sell shares according to any apparent trend. It negates. If shares can be reasonably expected to increase for the rest of the year, the investment decision will include this future value - with adequate discounting - to the current price.
According to the necessity, effective market hypothesis can represent only gross approximation. In order for the hypothesis to work properly, there must be an market of intelligent and rational agents who affect their evaluation of trends and value. Paradoxically, if these agents were to assume an effective market hypothesis, the system would disintegrate. The most active market participants must, to some extent, believe that they are able to make profitable decisions based on new information or assessment.
because of this paradox and because of the large numberThe data of the data that is against it is an effective hypothesis on the market extremely controversial. It remains the main element of the neoclassical economy and is still widely taught. Many economists are likely to consider the hypothesis a good description of the market in ideal. However, the markets of the real world differ from perfect efficiency, some more than others. For example, the oil futures market, which participates in many well -informed and well -funded investors, is likely to better correspond to the hypothesis than the used car market.