You work as a researcher at an actively managed equity fund. Your supervisor draws your attention to the following two quotes. “After costs, only the top 3% of managers produce a return that...

7
Critical Essay
Name of the student:
Name of the university:
Author’s note:
Introduction
Market efficiency deals with the incorporation of the available market prices. There are chances of making profitable gains by collecting information and putting them into action. There are various types of market with varied managers working for the operation of these markets. The various formulators of structures and partiality in behaviour and approach can also lead to market inefficiency. It is vey important to get the proper knowledge of these regulations to increase efficiency of the market. There are prices which have direct reflection of the information provided and thus implies an efficient market structure. There are even probable chances of misdirection of funds when the incorporation of prices is not done on the basis of information provided. Not only this, the incorporation is very essential to ensure economic growth. The market efficiency is thus affected by availability of various participants in the market and the proper analysis of the available information and limitations imposed on trading and enterprise (Businessdictionary.com 2019). There are basically three forms of market efficiency called strong form, semi strong form and weak form, each depending on the information which determines the assets and the prices. When the market data is fully reflected by the given information relating to transactions in the past and other trade information, then it is called as weak form. When the prices are reflected by the openly known information, then it is the semi strong form. And finally, when the prices are reflected by all the information like privately and publicly known, is called the strong form. It is very crucial for the intrinsic and market value to be same in order to gain market efficiency. On the other hand, behavioural finance is one which makes use of the psychological factors of human and their biased traits for explaining decisions related to investment. This is also useful to understand the taken decisions and the effect of the i
ational traits of the participating factors in the market can be exhibited. The traditional assumptions of the finance structure by challenged by Shiffrin, H. in 1999 claiming that there are alternative explanations relating to behaviour (Fo
es.com 2019). There is always a behavioural finance whenever decisions are taken related to finances. The human psychology effects every aspect of finances and thus financial practitioners are needed in order to ignore the ill effects of psychological factors.
Discussion of Eugene F. Fama’s views
Eugene F. Fama is a Nobel Prize winner who gave the concept of market to be “informationally efficient”, in “Efficient Capital Markets: a Review of Theory and Empirical Work”. When all the available information are incorporated in the price at each time, then it has got the future value. “Informational Efficiency” is a naturally occu
ed result of the competition prevailing in the market, the free entry of new entrants and low cost information (Fama, 1965). Fama made use of the common word to give the definition of market efficiency different from the traditional one. It is not necessary that the orders would be processed efficiently by an informationally efficient market. There can be unforeseen circumstances and challenges even in such a market. Eugene’s efficient-market hypothesis mainly predicts that the price movements of the stock cannot be predicted. It is not meant that informationally efficient market must be able to see the future. Fama greatly contributed to the fact that market efficiency have become an important principle in the empiric working of the economics related to finance which has major influence on the worldly matters as well. It does not believes in the implication of the simple rules of trading such as buying products when the mrket raised up the previous day (Fama 1965). For a long time, Fama’s efficient market proposition has given the major principle for economics related to finances. The efficient markets theory is applied to all kinds of securities related to finances but mainly it...