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Efficient Markets Hypothesis |
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Definition of Efficient Markets HypothesisEfficient Markets HypothesisThe hypothesis that securities are typically in equilibrium--that they are fairly priced in the sense that the price reflects all publicly available information on the security.
Related Terms:Auction marketsmarkets in which the prevailing price is determined through the free interaction of Cash marketsAlso called spot markets, these are markets that involve the immediate delivery of a security Coefficient of determinationA measure of the goodness of fit of the relationship between the dependent and Correlation coefficientA standardized statistical measure of the dependence of two random variables, Derivative marketsmarkets for derivative instruments. Efficient capital marketA market in which new information is very quickly reflected accurately in share Efficient diversificationThe organizing principle of modern portfolio theory, which maintains that any riskaverse Efficient frontierThe combinations of securities portfolios that maximize expected return for any level of Efficient Market HypothesisIn general the hypothesis states that all relevant information is fully and Efficient portfolioA portfolio that provides the greatest expected return for a given level of risk (i.e. standard Emerging marketsThe financial markets of developing economies. Expectations hypothesis theoriesTheories of the term structure of interest rates which include the pure Information Coefficient (IC)The correlation between predicted and actual stock returns, sometimes used to Internally efficient marketOperationally efficient market. Liquidity preference hypothesisThe argument that greater liquidity is valuable, all else equal. Also, the Markowitz efficient frontierThe graphical depiction of the Markowitz efficient set of portfolios Markowitz efficient portfolioAlso called a mean-variance efficient portfolio, a portfolio that has the highest Markowitz efficient set of portfoliosThe collection of all efficient portfolios, graphically referred to as the Mean-variance efficient portfolioRelated: Markowitz efficient portfolio Negotiated marketsmarkets in which each transaction is separately negotiated between buyer and seller (i.e. Operationally efficient marketAlso called an internally efficient market, one in which investors can obtain Overreaction hypothesisThe supposition that investors overreact to unanticipated news, resulting in Perfectly competitive financial marketsmarkets in which no trader has the power to change the price of Spot marketsRelated: cash markets Correlation CoefficientA measure of the tendency of two variables to change values coefficient of correlationa measure of dispersion that indicates the degree of relative association existing between two variables coefficient of determinationa measure of dispersion that coefficient of variationa measure of risk used when the standard deviations for multiple projects are approximately input-output coefficienta number (prefaced as a multiplier Correlation coefficientA statistic in which the covariance is scaled to a Efficient frontierA graph representing a set of portfolios that maximizes capital marketsmarkets for long-term financing. efficient capital marketsFinancial markets in which security prices rapidly reflect all relevant information about asset values. financial marketsmarkets in which financial assets are traded. Accelerationist HypothesisBelief that an effort to keep unemployment below its natural rate results in an accelerating inflation. Permanent Income HypothesisTheory that individuals base current consumption spending on their perceived long-run average income rather than their current income. Beta coefficientA measurement of the extent to which the returns on a given stock move with stock market.
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