Empirical Test of Efficient -Market Hypothesis and Profitability of Using Combined Investment Strategies

Topic

Empirical Test of Efficient -Market Hypothesis and Profitability of Using Combined Investment Strategies

Instructions

The direction is anomalies in international financial market, you need to talk about some anomalies in the article, then do empirically tested in different financial markets, database is Datastream Eikon. What explains the dynamics of 100 anomalies.

Answer preview

An efficient market consists of information symmetry which is free and available to everyone. Many investors take advantage of this information to make informed decisions about security prices in the market. According to Bhattacharya & O’Brien (2014), clever investors identify securities that are undervalued since their future values are expected to increase at a higher rate than normal-valued securities.

However, profiting from observing and predicting price movements is very difficult and unlikely especially in efficient markets where prices adjust quickly (Frahm, 2013). Frahm explains that current stock prices are reflective of all the available information at a given time period, thereby there is no reason for traders or investors to believe that are undervalued or overvalued (Jiang & Tian, 2011).

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