Question

when is a market considered efficient? explain

when is a market considered efficient? explain

Homework Answers

Answer #1

A market is considered to be efficient when the market price is an unbiased estimate of the true value of a particular thing.

Generally, an investor while investing in a company or in any stock in particular has a vision of making profit by outperforming the stock.

But when the market is efficient, then all the information related to that company or that stock is available to everyone quickly and hence an investor cannot outperform a stock or a company or a thing in a market that is efficient.

The price of an object in an effecient market is it's true value and hence deals also with minimum deviation or fluctuations of the prices.

Market Efficiency is formulated by Eugene Fama in 1970 in the Efficient Market Hypothesis.

More detailed information about Effecient market can be obtained from various books and internet as well.

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