SP1202 SUJA

I am thinking of writing on the Efficient Market Hypothesis. Roughly speaking, the hypothesis claims that our market is one in which the asset prices fully reflect available information. With respect to a stock market, the stock prices adjust immediately to the new information. The claim has some implications. Investors are unable to reap abnormal returns from analysing the price histories or financial reports for example. Further, many theories and pricing models in modern finance are based on the hypothesis. There is some empirical evidence supporting the claim and the the hypothesis went unchallenged 20 or 30 years ago. However, in recent years, there is some opposing evidence and some academics have formulated theory based on the behavioural finance. Until now, the academics divided into three camps, those supporting EMH, those supporting behavioural finance and majority left undecided. In my view, the EM is sort of an ideal limit which could never be achieved in real markets at all times. We can argue to which extent the real market resemble the hypothetical one. I also feel that markets are different in different parts of the world and in different time. Other factors such as law enforcement can also contribute towards the ideal market.