The Strong Form of Efficient Market Hypothesis Essay

The Strong Form of Efficient Market Hypothesis - Essay Example This evaluation may seem too obvious to day, but prior to the efficient market hypothesis in the 1900s, it was not so self-evident. In recent times however, the Efficient Market Hypothesis is subject to critical re-examination and trial in the paradigms of financial market research (Russel and Torbey, 2001:27). Primary evidence shows that the initial confidence of the concept of Efficient Market Hypothesis is misplaced. According to observations, Efficient Market Hypothesis based financial equilibrium models do not depict the actual trading operations in the world. Indeed, numerous inconsistent results and anomalies require refinement of the current paradigms. This paper presents a critical analysis on the validity of Efficient Market Hypothesis strong form based on existing evidence. Within the realms of finance, Efficient Market Hypothesis reiterates that there is efficient information in financial markets, that assets traded in the financial markets such as bonds, property, or sto cks, reflect all the known and relevant information. In this regard therefore, there is no bias since the information present reflects the collective beliefs of involved investors concerning future expectations and prospects. The Effective Market Hypothesis states that in a financial market with effective information, it is impossible to outperform that market using known information, with the exception of lack (Palan, 2011:24). According to the hypothesis, news or information refers to anything capable of affecting the current market prices.