fin 620 - wk 1 - According to Muhammad & Rahman (2010),...

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According to Muhammad & Rahman (2010), “efficient market hypothesis (EMH), popularly known as Random Walk Theory, is the proposition that current stock prices fully reflect available information about the value of the firm, and there is no way to earn excess profits (more than the market overall), by using this information” (p.36). This means that there is a relationship between information and share prices in the capital market. EMH implies that efficient market is one in which stock prices reflect all available information (Chughtai, 2010). This statement is consistent with Muhammad & Rahman’s view that efficient market hypothesis implies that investors react quickly and in unbiased manner to new information. Furthermore, Reilly & Brown (1997), say “an efficient capital market is one which security prices adjust rapidly to the arrival of new information and, therefore, the current prices of securities reflect all information about the security (as cited by Chughtai, 2010). Fama (1965) classifies market efficiency into three categories namely; weak form, Semi-Strong form and Strong form (as cited by Muhammad & Rahman, 2010). These different forms are briefly described below; Weak Form: The weak form of EMH assumes that the price of a share any point in time fully reflects all
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This note was uploaded on 06/20/2011 for the course FIN 620 taught by Professor Shin during the Spring '09 term at University of Maryland Baltimore.

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fin 620 - wk 1 - According to Muhammad & Rahman (2010),...

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