Stock market efficiency has been the subject matter of research studies for periods well over the past three decades. Several theories have been established about basically how the competition will drive all information into the prices of securities quickly. Centering this idea the concept known as Efficient Market Hypothesis has been evolved which also has been the subject of intense debate among academics and financial professionals. Efficient Market Hypothesis states that at any given time security prices fully reflect all available information. It is stated that if the markets are efficient and current prices fully reflect all information then buying and selling securities in an attempt to outperform the market will effectively be a game of chance rather than skill. Several stock market anomalies have also been uncovered to undermine the efficient market hypothesis. This dissertation paper attempts to report on the efficiency of the stock market advocated by the efficient market hypothesis and its effect on the trading of securities on the basis of a review of the available literature. . While trying to support the premises that trading in the securities to outperform an efficient market is a game of chance rather than skill, the paper also make a critical analysis of various stock market anomalies.
Stock Market Efficiency: How does It Reflect on the Securities Trading Table of Contents Abstract Table of Contents Chapter 1 Introduction Chapter 2 Objectives, Scope and Methodology of the Dissertation 2.1 Objectives of the Study 2.2 Scope of the Study 2.3 Research Approach 2.3.1. Research Strategy 2.3.2 Data Collection Methods 2.4 Structure of the Dissertation Chapter 3 Literature Review 3.1 Efficient Market Theory 3.2 Types of Market Efficiency 3.3 Need for Market Efficiency 3.4 Levels of Market Efficiency 3.5 Reflections of an Efficient Market on Securities Trading 3.6 Stock Market Anomalies 3.6.1 Kinds of Stock Market Anomalies 3.7 Fundamental Anomalies 3.7.1 Value Investing 3.7.2 Low Price to Book 3.7.3 Low Price to Sales 3.7.4 Low Price to Earnings 3.7.5 High Dividend Yield 3.7.6 Neglected Stocks 3.8 Technical Anomalies 3.8.1 Moving Averages 3.8.2 Support and Resistance 3 4 6 7 7 8 8 9 9 10 11 11 12 12 13 14 16 17 17 17 18 18 18 18 18 19 19 19
3.9 Calendar Anomalies 3.9.1 The January Effect 3.9.2 Turn of the Month Effect 3.9.3 Monday Effect 3.10 Other Anomalies 3.10.1 Size Effect 3.10.2 Announcement Based Effect 3.10.3 IPOs, Seasoned Equity Offerings and Stock Buybacks 3.10.4 Insider Transactions 3.10.5 The S&P Game Chapter 4 Findings and Analysis 4.1 Findings 4.2 Analysis Chapter 5 Conclusion and Recommendations 5.1 Conclusion 5.2 Recommendations References
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Chapter 1 Introduction The Stock market movements are often influenced by the availability of information on the various securities that is being dealt with in the market. Depending on the information flow, the stock’s price moves up and down reflecting the mood of the market. Under an efficient market, since the stock prices already represent the available information, they will move only when new, unexpected information becomes available. The movement of the stock prices is largely determined by the relative merits and demerits of the information and how it is going to affect the performance of the company which the stocks represent. Just the same way the predictability of the information is impossible as to whether it is good or bad, it is equally impossible to predict the direction in which the stock prices will move in the future based on such information. Generally it is assumed that it is not necessary for everyone in a financial market to be well informed about a security and also that all the participants should have the ability to perceive, analyse and use the information to their advantage....