¶ … efficient market hypothesis and its relation to securities prices, their response to new market information, investor opportunities, and behavioral finance challenges.
What does the efficient market hypothesis say about a) securities prices?
An efficient market is one in which "the market price of a security is an unbiased estimate of its intrinsic value" (Chandra, 2008). That is not to say that the market price for a security will equal its intrinsic value all the time. But what it does say is that there will be errors in market prices but they are not biased; and it does also say that while the price of securities can and will diverge from the intrinsic value of the securities but that deviation will be (in most cases) random. The divergence of the price from the intrinsic value will not be linked "with any observable variable" (Chandra, 422).
Because the deviations of the market price from the intrinsic value of the securities are strictly arbitrary, it makes it impossible to be able to identify securities that are over-valued or under-valued,...
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