Question

Briefly state and describe (in one sentence) two of the issues in testing whether the stock market is efficient or not. What does it mean for stock markets to be efficient? Are markets efficient in reality? (Hint: what is the correct answer to every finance and economics question? Your answer should be longer than two words, though)

Answer 1

1.Two of the issues in testing whether the market is efficient or not are-

A.Whether publicly available information and privately available information at discounted in the stock price or not.

B. Market should only react to newly available information and there is no scope of technical and fundamental analysis.

2. When is stock market is efficient it means that all the informations have been discounted into the price and it is not possible to make any kind of extraordinary return as stock prices fully reflect available informations.

3. No, stock markets not efficient in reality as it reacts on insider trading and there are lot of people who make excess return than index rate of return.