Abstract: According to the efficient market hypothesis, current stock prices precisely reflect all relevant risk and return information. This implies that near-term stock-price changes are random and independent. In a rational pricing environment, investing in the stock market is a "fair game" in which the expected excess return for each security is zero. This means that every stock at every point in time is an equally good buy or sell. In the present stock market environment, accounting misrepresentation and outright fraud at major corporations, the difficulty of assessing future growth prospects for emerging high-tech companies with scant historical experience, and stock market manipulation have all helped undermine the idea of perfect and free information in the stock market. As such, the basis for assuming that the stock market is always perfectly efficient has also been undermined. In such an imperfect environment, bubbles in the stock market can and do occur.
Publication Year: 2003
Publication Date: 2003-01-01
Language: en
Type: book-chapter
Indexed In: ['crossref']
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