Efficient-Market-Hypothesis(有效市场假说).doc

Efficient Market Hypothesis The Efficient Market Hypothesis (EMH) holds that in an open and efficient market, security prices fully reflect all available information and prices rapidly adjust to any new information. Fama first defined the term “efficient market” in financial literature in 1965. As a core theory to research efficient market, EMH still is a perfect assumption. There are two assumptions that must satisfy if EMH is established. The one is rational agent assumption. It says that all investors are the pursuit of individual utility maximization rational man, having the same understanding and the ability to analyze information. And the forecasts of stock prices are the same. Another assumption is that Random Walk Theory. In an efficient market, it is only when new information becomes available that significant changes in security prices will occur. Means stock price movements do not follow any pattern or trend. By definition, new information is currently unknown and occurs at random, so future price movements in securities are unknown and occur at random too. This means price movements ‘wander’ in a random walk. Here are the three forms of the Efficient Market Hypothesis. Weak-form EMH It says current prices reflecting?all publicly available historic price information; trading rules based on past stock market return or volume are futile. It can’t profit by looking at past trends. A recent decline is no reason to think stocks will go up (or down) in the future. It means that it will not be possible to use ‘technical analysis’. Semi-strong Form EMH It says current prices reflect all publicly available information, including past prices, but additionally information contained in in a company’s report and accounts, stock market announcements and other known economic conditions; trading rules based on public information are futile. Strong Form EMH It says current prices reflect all public information and non-public information.?All information include private i