Efficient Markets Hypothesis(Financial Economics) Essay

Efficient Markets Hypothesis(Financial Economics) - Essay modelingThe random movement argument of weak form of efficiency may non be logical argument as research studies have all the way outlined a positive correlation among degree of tending observed in prices as well as the time period. This therefore clearly outlines that the prices do not follow a random path but rather show trustworthy trends. It is however, critical to note that these period are not relatively long but trends do come out over certain period of time.Behavioral economists argue that markets are imperfect because of the behavioral and cognitive biases. Imperfections in the market emerge as a result of these cognitive behaviors and as such markets may not efficaciously operate. These cognitive biases emerge as a result of overconfidence, information and representation bias and former(a) human errors result into errors in judgments. These biases and human error does not allow investors to value the stocks pr operly and as such, markets show inefficiency. These errors often result into investors buying the growth stocks and ignoring value stocks and those who potty reason correctly can profit out of this situation and hence can beat the market easily.Studies conducted on the Indian beginning Exchange outlines the weak form of inefficiency and suggested that the prices actually do not follow random prices. Various local anesthetic studies in the developing countries have consistently shown the same results that the markets are weak form inefficient at least in the local developing markets. These studies have clearly shown that the markets may not be efficient in any form of efficiency. These arguments have also been supported by other empirical studies indicating that fifty-fifty the strong form of efficiency does not exist.Stocks having low P/E ratios tend to provide high returns and thus can allow investors to earn abnormal returns if chosen wisely. Investors developing their studie s based upon choosing the stocks on P/E ratio can beat the market. It