Efficient market theory


 

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Efficient market theory

The theory that claims that the current price of a share reflects everything that is known about the company and its future earnings potential, and that is it impossible to beat the market consistently.Efficient market theory suggests that the army of analysts and fund managers in the City whose job is to actively manage superior-performing portfolios are engaged in a futile exercise because everything they find out is rapidly transmitted around the market, and share prices instantly reflect the common knowledge. In other words, no one can get one up on anyone else. And the logical extension of this is that passive funds - tracker and index funds - are the best place to park your money, because their management costs are much lower and they are mathematically structured to match the performance of their chosen index.Plenty of people disagree with efficient market theory, and their ranks include people like Warren Buffett who has consistently produced returns of over 20% on his portfolio over a 30 year period.



Similar Matches

Internally efficient market

Internally efficient market

See: Operationally efficient market


Operationally efficient market

Operationally efficient market

Market in which investors can obtain transactions services that reflect the true costs associated with furnishing those services. Also called an internally efficient market.


Earnings response coefficient

Earnings response coefficient

A measure of relation of stock returns to earnings surprises around the time of corporate earnings announcements.


Regression coefficient

Regression coefficient

Term yielded by regression analysis that indicates the sensitivity of the dependent variable to a particular independent variable. See: Parameter.


Correlation coefficient

Correlation coefficient

A standardized statistical measure of the dependence of two random variables, defined as the covariance divided by the standard deviations of two variables.


Further Suggestions

Gini Coefficient
Efficient markets theory(EMT)
Efficient capital market
Efficient market
Efficient set
Efficient market
Minimum efficient scale
Coefficient of determination
Information Coefficient (IC)
Efficient diversification
Efficient allocation
Coefficient of Variation
Inefficient portfolio
Efficient frontier


 
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