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Currency Trading Strategies Tag Business Currency Trading Strategies 英文论文样本展示一（Stock Market Efficiency: How does It Reflect on the Securities Trading ）
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? Allocation Efficiency: helping in the process of allocating society’s resources between competing real investments
? Pricing Efficiency: enabling investor to expect to earn merely a risk-adjusted return from an investment as prices move instantaneously and in an unbiased manner to any news.
It is ‘pricing efficiency’ that is the focus of this paper.
3.3 Need for Market Efficiency:
The Stock Market should be efficient for discharging the following values expected of the market:
? To Ensure Proper Pricing of Securities and thereby to encourage the trading in the shares and other securities
? To enable company managers take sound financial decisions by giving correct signals to them
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? To help in an efficient allocation of resources based on the operating efficiency and the pricing efficiency by providing timely information on the securities
3.4 Levels of Market Efficiency:
Economists have defined different levels of efficiency according to the type of information, which is reflected in prices. Three levels of market efficiency can be identified which are as follows:
? Weak-Form Efficiency- where the share prices fully reflect all information which were revealed by past price movements of the shares. This form of efficiency will not do any good to the investor as the future cannot be predicted on the basis of the historic price data.
? Semi-Strong Form Efficiency-where the share prices fully reflect all the relevant information which are publicly available like earnings and dividend announcements, rights issues, technological break through, resignation of directors etc. along with the past price movements of the shares
? Strong-Form Efficiency-where all relevant information including those privately held is reflected in the price. In this form of efficiency ‘Insider Trading’ plays a vital role, in which a few privileged individuals like director or other senior executive of a company who is in possession of a valuable information (positive or negative) about the company and uses it to take a personal profit by trading in the company’s shares.
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3.5 Reflections of an Efficient Stock Market on the Securities Trading:
"An 'efficient' market is defined as a market where there are large numbers of rational, profit-maximizers actively competing, with each trying to predict future market values of individual securities, and where important current information is almost freely available to all participants. In an efficient market, competition among the many intelligent participants leads to a situation where, at any point in time, actual prices of individual securities already reflect the effects of information based both on events that have already occurred and on events which, as of now, the market expects to take place in the future. In other words, in an efficient market at any point in time the actual price of a security will be a good estimate of its intrinsic value.”(Eugene F. Fama 1965)
As stated above, the Efficient Market Hypothesis states that at any given point of time, the prices of securities in the stock market fully reflect all available information. The Efficient Market Hypothesis implies that the while individuals buy and sell securities on the assumption that the worth of the securities are more or less than the price the market offers. But if markets are efficient and current prices fully reflect all information, then buying and selling of securities in an attempt to outperform the market will effectively be a game of chance rather than skill. This is so because there are various other factors which have a direct or indirect influence on the stock prices and which affect the movements of the prices upwards or downwards depending on their positive or negative impact on the buying or selling moods of the investors.
There is another theory known as ‘Random Walk Theory’ which advocates that the stock price movements will not follow any patterns or trends. The theory also asserts that the past price movements cannot be used as a basis to predict the future price movements
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With more and more numbers of intelligent investors and traders entering the stock markets for transacting on various over valued and undervalued securities, the market tends to become more efficient to take the faster dissemination of information flowing from all directions and from all these people dealing in the securities.
While the Efficient Market Hypothesis generalize the situation of stock price movements, technical analysis like moving averages and Support and Resistance techniques have tried to provide some scientific bases to predict the reactions of the stock prices.
The efficiency of the stock market operation has its own reflections on the trading in securities both from the angle of the investor and the company whose shares are being traded. As it is implied that the public information cannot be used to earn abnormal returns, the average investor should decide on a particular portfolio with the minimum cost of trading and base his decision on a host of information which are timely and valuable to make the otherwise efficient market to his advantage. The companies should be encouraged by investor pressure, accounting bodies, government ruling and stock market regulations to provide as much information as possible to enable the stock market to react sharply and accurately to ensure a proper pricing.
As far as the companies are concerned the market efficiency will be greatly affected by the company either manipulating or withholding of information and which consequently will reflect on the prices of their securities. With the short term profitability in view if the company reacts in an undesirable way it will be detrimental not only to its shareholders but to the society as well. This is so because based on the incorrect information, the stock market may react in an incorrect pricing which will affect the wealth of the old shareholders and new shareholders alike who would have transacted in the shares.
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