The concept of efficient market hypothesis first put forward and popularized by Fama in 1970. In the context of efficient market hypothesis, which is the market is the capital market and money markets. A market said to be efficient when no one, either individual investors or institutional investors, will be able to earn abnormal returns, after adjusting for risk, using the existing trading strategies. That is, the prices established in the market is a reflection of the existing information or “stock prices reflect all available information.”
According to the concept of efficient market hypothesis, when market prices formed is a reflection of existing information. Efficient market hypothesis grouped into three. These three forms of efficient market are:
- Efficient market hypothesis weak form
- Efficient market hypothesis semi-strong
- Efficient market hypothesis strong form
Efficient market hypothesis theory has become a benchmark study that received widespread attention during the last three decades and became the most interesting topics in development of the theory of corporate finance.
Empirical evidence presenting tend to support the hypothesis that capital markets in the U.S. tend to form efficient in efficient market hypothesis semi-strong level. That is, information that makes up the price in the market is still dominated by historical information and public information, although in many ways still can not say for sure.
Efficient market hypothesis assumptions
Tests of market anomaly remains an interesting reference for finance and accounting researchers to see the extent which speed of price changes (speed of adjustment) for the entry of new information.
Another interesting side efficient market hypothesis is associated with the discovery of an anomaly in many ways seems to confront the concept of market efficiency that developed over the years. At least four groups of anomalies are known so far, the company’s anomaly, seasonal anomaly, anomalous event or events, and accounting anomalies.
The existence of anomalies in the market that in many respects might be evidence against efficient market hypothesis, and also a challenge to efficient market hypothesis should continue to be tested again. The discovery of anomalies in the market does not necessarily abort efficient market hypothesis, because it seems anomalous that there is only associated with form efficient market hypothesis semi-strong. That is, new information into the public can affect security prices.
Giving the consistent evidence to support or reject efficient market hypothesis, for further research to obtain more in-depth confirmation. Several studies have been conducted to test the efficiency of capital markets in which the results obtained still has not shown the existence of an agreement. Is an opportunity for finance and accounting researchers try to peel more about efficient market hypothesis in the capital markets?
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