Compare And Contrasting Famas Articles - 1148 Words

Comparing and contrasting Fama’s articles (1971, 1990), this work will critically assess the development of EMH during the 1970 to 1991 period. Firstly, it provides the reader to a short introduction to the EMH and to comparison the major changes between two articles. Thereafter, the main focus will be concentrated on second article and its critical evaluation of results obtained. The main purpose of the capital market is to provide the investors with accurate signals for resource allocation. It is possible when market security prices do â€Å"fully reflect† available information providing the opportunity to make production-investment decisions. Such markets are also called the â€Å"efficient†. A precondition for this is that information and trading costs equal to 0. Moreover, the joint hypothesis problem is the main obstacle about market efficiency because it must be tested jointly with some asset pricing models. In article of 1971, Fama categorised market efficiency into three main forms. Weak form is based on the historical data of the stock prices. The semi-strong form tests how efficiently prices adapt to the publically available information. The third form is concerned whether any given market participants having monopolistic access to the creation of the stock prices. Final Draft – Return Predictability: In short, the new work rejects the old constant expected returns model that seems to perform well in the early work. It is rejected due to such findings as