Question

the price is right? Has the financial crisis provided a fatal blow to the efficient market hypothesis? a one-page summary.

Answer 1

The Price Is Right?

Has The Financial Crisis Provided a Fatal Blow to the Efficient market hypothesis?

1) EMH says that financial market participants act as powerful information gatherers about an asset's true value such that an asset's price will generally reflect all information available about the asset.

2) The belief in efficient financial markets blinded many, if not most economists to the emergence of the biggest financial bubble in history. And efficient market theory also played a significant role in inflating that bubble in the first place.

Efficiencies:

1) Most of the early research found that stock markets do tend to meet a certain degree of efficiency. In general, where the costs to markets of gathering information exceed the benefits of trading on it, a market will be inefficient in the sense that it will not reflect that information.

Some Important points to remember:

1) "Stock Prices will quickly reflect all available information about the asset's true value."

2) "If financial markets are efficient, how could investors have gotten things so wrong as housing and securitiy markets are concerned"

EUGENE FAMA SAYINGS:
" To argue that irrationality can be enough to make prices predictable is something else. And so my opinion is, economists are basically conceding that for all practical purposes, markets are efficient."