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Efficient market theory |
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Efficient market theoryThe 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 MatchesInternally efficient marketInternally efficient marketSee: Operationally efficient market Operationally efficient marketOperationally efficient marketMarket 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 coefficientEarnings response coefficientA measure of relation of stock returns to earnings surprises around the time of corporate earnings announcements. Regression coefficientRegression coefficientTerm yielded by regression analysis that indicates the sensitivity of the dependent variable to a particular independent variable. See: Parameter. Correlation coefficientCorrelation coefficientA standardized statistical measure of the dependence of two random variables, defined as the covariance divided by the standard deviations of two variables. Further SuggestionsGini CoefficientEfficient 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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