Market it cannot help to predict the future prices.

Market efficient is a market
in which securities or share price that indicate the all possible information
or new information that accurately in a short time and quickly. Capital market
efficiency is also about the situation that the investor know about the
information, mainly about the basic value of securities into the price of
securities. Another thing, investor also will involve actively and accurately
to the new information. We also can see that all the investors that know about
the information will actively analyzing and trading stock. Besides that, capital
market efficiency is a market where information regarding the value of
securities are in real times. So we know that the value of securities
fluctuates depend on the present value of future cash flows, an efficient
capital market enables these fluctuations to be reflected in the securities current
price.

EMH or technical analysis
will look only on the past result, so we cannot believes on the past result to
predict or outperform the market. The price in a efficient market are random,
so there are no investment pattern can be look. A planned approach to a
investment will be not successful. Investor are able to generate abnormal
return in the market and they can expect to make a return equal to the market
return only.

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The weak form EMH is
something that we cannot predict the future stock on the basis of past stock
prices. There are no point to investor to look at the past stock prices because
it cannot help to predict the future prices. Semi strong form of EMH using the
published information but it also cannot predict the future prices. There are
nothing to be gained when look at the financial statements because all
published information is already reflected in a stock prices. Investor will
look at the outperformance of the fund manager when they want to invest.
Investor also will wait for the manager to provided the enough data to make
sure that their performance is due to skill, to know that at which point that
fund will be sufficiently large. So we can say that fund manager need to
provided enough data to the investor. The strong form of EMH reflect all the
information from the public and the private sources. The implication that can
be seen here if there are some inside information and could legally trade based
on that, there are nothing to be gain because not even insiders would be able
to beat the market. Because of that, investor can determine and does not need
any information from the fund manager because that information are available to
everyone. Another thing, we can say that the implications of weak and
semi-strong EMH cannot be overstated.

 

 

 

 

 

 

 

 

 

 

 

 

1.     
What are market anomalies and how do
they come about? Do they support or refute the EMH? Explain any TWO (2) of the
market anomalies.

 

Market anomalies is the unusual occurrence or abnormality in a smooth
pattern of stock market. It also different from what have been expected and it
is unusual. Market anomalies are market patterns that seem to lead to abnormal
returns more often that not, and since some of these patterns are based on the
information in the financial reports, market anomalies present a challenge to
the semi strong form of the EMH. Besides that, the security prices are reflect
all the available information at any point in time.

Calendar effects is one of the market anomalies that are linked to a
particular time. Stocks returns may be closely tied to the time of year or time
of week. The example of the most popular calendar effects include the weekend
effect, the turn-of-the-month effect, the turn-of-the-year effect and the
January effect. The January effect is the most that have a valid explanation
because we can see on the tax calendar that investor sell off stock at year end
to cash in gains and sell losing stocks to offset their gains for tax purposes.

In the market anomalies, we cannot say that all the anomalies have a
relationship with the time of week, month or year because some are linked to
the announcement. Post earnings announcement drift (momentum) is also a market
anomalies. Stock price adjustment may continue after earning adjustment have
been announced. For example stock split effect, before or after the company
announce a stock split will normally rise the stock prices. So we can say that
the increase in price is from the stock split effect.

 

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