Finance For Management Essay Example | Topics and Well Written Essays - 1500 words

Finance For Management - Essay Example383)This part of the paper seeks to analyse the Jensen argument in 1978, quoted by information superhighway& Neale that the efficient merchandise hypothesis is the best established fact in all of social science. Whilst Neale & McElroy (2004) were less categorical sometimes sway commercialize valuations may look irrational. But in the longer term the markets are efficient processors of information and get valuation almost rightNumerous cover have demonstrated that early identification of new information enkindle provide substantial profits. Insiders who trade on the basis of privileged information can therefore make excess returns, violating the strong form of the efficient market hypothesis. Even the earliest studies by Cowles (1933,1944), however, make it clear that investment professionals do non beat the market. It has already been tell that an efficient market is one where the termss of securities fully reflect all available inform ation, but then what are the sufficient conditions for jacket market efficiency In an idealized world, such conditions would bethe debate about market efficiency has resulted in thousands of empirical studies and literature attempting to determine whether specific markets are in fact efficient, and if so to what degree. In fact, the majority of studies and researches of technical theories have gone to the result that it is difficult to predict prices. No wonder, Neale & McElroy (2004) were less categorical, and stated that sometimes stock market valuations may look irrational. But in the longer term the markets are efficient processors of information and get valuation about rightIn addition, the random walk theory indicates that price movements will not follow any trends and so by knowing the past price movements its not possible to predict the future price movements. All these state that markets are in fact efficient. However, researchers have also exposed many stock market anoma lies that seem to be inconsistent with the efficient market hypothesis.ConclusionThis section attempts an analysis of Michael Jensen 1978 arguments on the efficient market hypothesis. An attempt was also make to reconcile this statement with Neale & McElroy 2004 statement. From the above analysis, one can gently conclude that trading strategies seem to be widespread among fund managers and there is little show that they would generate excess returns in practice (Malkiel, 2003). Researchers have also exposed many stock market anomalies that seem to be inconsistent with the efficient market hypothesis. The end of the year effect, small firm effect is all good examples to this effect.The efficient market hypothesis has been challenged by numerous studies on the grounds that there are often underrreactions or overreaction of stock markets to information. (Baberies et al, 1998 Daniel et al, 1998 Hong and Stein, 1999). Accordingly, in a variety of markets, sophisticated investors can ear n