According to efficient market hypothesis stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices....
The Adaptive Market Hypothesis, as proposed by (2004,2005),is a new framework that reconciles theories that imply that themarkets are efficient with behavioral alternatives, by applying theprinciples of evolution - competition, adaptation, and naturalselection - to financial interactions.
Question on Efficient market hypothesis
The efficient market hypotheses also know as the joint hypothesis problem, asserts that financial markets lack solid hard information in making decisions.
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According to Lo, the Adaptive Markets Hypothesis can be viewedas a new version of the , derived from evolutionary principles."Prices reflect as much information as dictated by the combinationof environmental conditions and the number and nature of "species"in the economy." By species, he means distinct groups of marketparticipants, each behaving in a common manner (i.e. pension funds,retail investors, , and hedge-fund managers,etc.). If multiple members of a single group are competing forrather scarce resources within a single market, that market islikely to be highly efficient, e.g., the market for 10-Year USTreasury Notes, which reflects most relevant information veryquickly indeed. If, on the other hand, a small number of speciesare competing for rather abundant resources in a given market, thatmarket will be less efficient, e.g., the market for oil paintingsfrom the Italian Renaissance. Market efficiency cannot be evaluatedin a vacuum, but is highly context-dependent and dynamic. Shortlystated, the degree of market efficiency is related to environmentalfactors characterizing market ecology such as the number ofcompetitors in the market, the magnitude of profit opportunitiesavailable, and the adaptability of the market participants(Lo,2005).
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The random walk hypothesis is a stating that evolve according to a and thus the prices of thestock market cannot be predicted. It has been described as 'jibing'with the . have historically accepted therandom walk hypothesis. They have run several tests and continue tobelieve that stock prices are completely random because of theefficiency of the market.
Efficient markets hypothesis; ..
Martin Weber, a leading researcher in behavioral finance, hasperformed many tests and studies on finding trends in the stockmarket. In one of his key studies, he observed the stock market forten years. Throughout that period, he looked at the market pricesfor noticeable trends and found that stocks with high priceincreases in the first five years tended to become under-performersin the following five years. Weber and other believers in thenon-random walk hypothesis cite this as a key contributor andcontradictor to the random walk hypothesis.
History of the efficient market hypothesis.
This implies that EMH is semi-strong Efficient Market Hypothesis, and that public information provide by Twitter sentiment correlate with changes in the exchange market trends.