The Efficient Market Hypothesis. “Investments” (Asia Global Edition ).

1. Random Walks and the Efficient Market Hypothesis
- stock prices that change in response to new information also must move unpredictably.
- “Random Walk” : Price changes should be random and unpredictable.
- If stock price movements were predictable, that would be demanding evidence of stock market inefficiency.
- Stocks already reflect all available information is referred to as the efficient market hypothesis (EHM)
- In market equilibrium, efficient information-gathering activity should be fruitful. Moreover, it would not be surprising to find that the degree of efficient differs across various markets.
- Three versions of the Efficient Market Hypothesis
 > The weak-form hypothesis asserts that stock prices already reflect all information that can be
 derived by examining market trading data such as the history of past prices, trading volume, or
 short interest.
 > The semi strong-from hypothesis states that all publicity available information regarding the
 prospects of a firm must be reflected already in the stock price.
 > The strong-form version of the efficient market hypothesis states that stock prices reflect all
 information relevant to the firm, even including information available only to company insiders.

2. Implications of the EMH
- The key to successful technical analysis is a sluggish response of stock prices to fundamental supply-and-demand factors.
- Resistance Levels : A type of “memory” to the market that allows past price history to influence current stock prospects.
- Rational security selection, even in an efficient market, calls for the selection of a well-diversified portfolio providing the systematic risk level that the investor wants. / Considering Taxation as well.