Financial Market Efficiency

Definition of financial market

Outlining the concept of efficient market

Introducing the efficiencies of markets

Highlighting forms of informational efficiency of financial markets

Identify forms of financial market efficiency tests

Types of analysis of financial market efficiency

An efficient market is one in which arbitrage opportunities are missing, the differences between the market price and the current value of the investment in buying financial title.

A financial market is considered efficient if it fully and correctly reflects all relevant information in determining rates.

Only then the price is correct "standard" value and given the price signal will lead to optimal capital allocation decisions.

Building this environment assessment and targeting investment involves the assumption of hypotheses thru is defined and operationalized a perfect market:

- Homogeneous rational behavior and anticipations of economic agents

- Atomicity and contingency markets

and free availability of information of

random trajectory of prices

- Unlimited money market interest without risk

- Absence of transaction costs and tax.

Financial efficiency can be analyzed from three different points view:

• organizational effectiveness, meaning that allocation processes undertaken to achieve a Pareto optimal;

• operational efficiency, which is determined by the economic subjects participants atomicity of all mechanisms that ensure the maintenance intermediaries; of prices at their equilibrium levels, and the important role of intermediaries

• informational efficiency, which provides coverage prices, the full and undistorted, of all available and relevant information regarding both the traded assets, as well as overall market characteristics.

Financial Market Efficiency in format PowerPoint