MARKET EFFICIENCY AND TYPES OF MARKET EFFICIENCY

Market Efficiency

Market Efficiency
Definition :market  efficiency refers to the degree to which the aggregate decisions of all the market's participants accurately reflect the value of public companies and their common shares at any moment in time.
This requires determining a company's intrinsic value and constantly updating those valuations as new information becomes known
. The faster and more accurate the market is able to price securities, the more efficient it is said to be.
. Definition  of Efficient Market Hypothesis:

This is an investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments.

TYPES  OF  MARKET  EFFICIENCY.

Eugene Fama identified three levels of market efficiency:
1.Weak-form efficiency:
Prices of the securities instantly and fully reflect all information of the past prices.
This means future price movements cannot be predicted by using past prices.
It is simply to say that, past data on stock prices are of no use in predicting future stock price changes.
Everything is random. In this kind of market, should simply use a "buy-and-hold" strategy.

2.Semi-strong efficiency:

Asset prices fully reflect all of the publicly available information.
Therefore, only investors with additional inside information could have advantage on the market.
Any price anomalies are quickly found out and the stock market adjusts.

3.Strong-form efficiency:

Asset prices fully reflect all of the public and inside information available.
Therefore, no one can have advantage on the market in predicting prices since there is no data that would provide any additional value to the investors.