The Efficient Market Hypothesis and its Application to Stock Markets

Travail d'étude , 2008 , 28 Pages , Note: 1.7

Gestion d'entreprise - Investissement et Financement

Especially after the 90ies, where the stock markets raised enormously, many private investors joined the stock market and were blended by abnormal profits and neglected possible losses. The same behavior could be observed before the Financial Crisis became reality. But each endless raising stock market would finally collapse, because stock prices are randomly and only driven by relevant news. The adjustment to the news is quickly. This is the theoretical argumentation of the Efficient Market Hypothesis (EMH), which will be evaluated in this paper.
The author gives an overview about the EMH by explaining the basic principles and its mathematical formulation. The practical part evaluated the EMH on selected examples, where the theory could only be partly approved.

Table of Contents

List of Abbreviations

1 Introduction

2 The Efficient Market Hypothesis
2.1 Definition
2.2 Tests
2.2.1 Test of weak efficiency
2.2.2 Test of semi-strong efficiency
2.2.3 Test of strong efficiency
2.3 Mathematical Description
2.3.1 Introduction to Stochastic Processes
2.3.2 General concept of the EMH
2.3.3 Martingale - model
2.3.4 Random Walk - model
2.3.5 CAP - model
2.3.6 Resume

3 Application to Stock Markets
3.1 General behavior of stock markets
3.2 Tests of weak efficiency
3.3 Test of semi-strong efficiency

4 Criticism
4.1 Rationality
4.2 Market Anomalies
4.3 Joint Hypothesis

5 Outlook

6 Conclusion

Bibliography

• Université: The FOM University of Applied Sciences, Hamburg
• Note: 1.7
• Auteur: Dr.-Ing. Sebastian Harder (Auteur)
• Année de publication: 2008
• Pages: 28
• N° de catalogue: V158375
• ISBN (ebook): 9783640743773
• ISBN (Livre): 9783640743766
• Langue: anglais
• mots-clé: Efficient Market Hypothesis, stock markets