Nepotism

       Market Efficiency

When someone invests money on any products, the sole of the individual is to generate profit from it. Many investors don't only stick on one particular aim but they remain in the constant struggle of competing their opponents at market places.

Market efficiency is defined as a degree to which the prices of all the products are reflected according to the market value. All the information related to price of the product is considered and are incorporated while setting the prices of the products.

According to market efficiency, it is mandatory for every investor to consider the pricing criteria of the product, as all the information is incorporated in the product so no one can exceed the limit of profit. And when prices are set according to market efficiency then they isn't any question for competing other market places.

Forms of Market Efficiency: -

Eugena Fama introduced the specific framework of market efficiency which has given rise to three different forms of market efficiency. In thr opinion of Eugena Fama, the three kinds of market efficiency is weak, semi-strong amd strong.

Weak form: -

In weak-form, market efficiency hypothesis all the market prices of the products are reflected by the historical prices of the securities. According to this hypothesis, no abnormal profit can be obtained by investing the money on the products. Weak-form market efficiency is one of the most important elements of the market efficiency hypothesis. This hypothesis also states the former prices will not predict the future prices of the products. The investors and business men found it less advantageous.

Uses of weak-form market efficiency: - 

By weak-form market efficiency, it becomes impossible to get benefit from price momentum and the prices of stocks are changing rapidly.  The past earning growth doesn't depict the future earning. It further shows that price momentum doest not exist. And other use is that it gives rise to the concept that present prices are independent of past prices. 

Semi-strong: -

According to semi-strong market efficiency, the prices of stocks or products reflects all the information which specifically include all the historical information related to the prices of the products. Semi-strong information is the combination of the former and new information related to the prices of the stock. This type of market efficiency also restrains the investors from obtaining illegal interest from the products. This kind of market efficiency is considered most stable hypothesis of market efficiency but the drawback of this hypothesis is that it couldn't include the private information related to the products.

Uses of semi-strong: -

The semi-strong market efficiency is better than weak-form market efficiency as it states that all the information related to the prices of the states are to be considered while setting the prices of the products. It further depicts that public information of the stock is considered efficient in trading. Semi-strong form is considered as the fundamental and technical hypothesis of the market efficiency.  It can lead to economic stability of any company.

Strong Market Efficiency: -

According to strong market efficiency, the prices of the products and stocks reflects both the public and private information related to the prices of the stock. It also limits the risk of abnormal profit from the products because it will already spark our the private information at the market place. But the researcher believe that this hypothesis of market efficiency is not so efficient because abnormal profit can be obtained when non-public information would be implemented. The advocates of strong market efficiency firmly believe that all the private information cannot provide benefits to the investors so the profit will not exceed the normal value.

Uses of strong market efficiency:-

Strong Market Efficiency is considered as most applicable and efficient practice as it includes all the former, present and private information regarding the prices of the stock. Burton G. Malkiel,the founder of strong market efficiency states the best policy at market places is buy and hold policy. According to buy and hold policy, the marketer buy products from the market and keeps it to himself unless the fluctuations in the prices of products take place in the market. This degrees also implies that profit cannot exceed the certain limit unless all the private information is assessed by the investors or marketer.

Evidence: -

The theory that state that stock prices share a

or reflects all the know information of the products in market is weak-form market efficiency. Weak-form market efficiency states that while setting the stock prices only current information is used and required and the past information is neglected. Its sole focus is on current or present information of the product.

We can made a supposition here, if David, a trader wants to sale his product. But then he comes to know that the prices of product decreases on Monday and increases on Friday while keeping this in mind, he decides to buy the product at the mid of they weak and sell it at the end of the weak. But if due to some reasons, the price of declines on Monday but could not increase on Friday. Then it will be weak-form market efficiency.

According to weak-form market efficiency only current information in focused but it could not help much in the development of the company or industry. To have stable and efficient progress,it is important to consider all the information including past present and public information while setting the prices of the products or stock. It would lead to the economic progress of the company and the investor would not have to face any financial unstabily.