In the world of finance there are many different markets which exist. For instance we have the commonly known markets such as the stock market and the bond market. Another aspect of the financial markets are the efficient markets which relate to stocks and bonds. Efficient markets are ones in which security prices are current and fair to all traders, and transactional costs are minimal. Within the efficient markets there are two forms: operational and informational.
Operational efficiency refers to the speed and accuracy with which trades in the market are processed. Many of the markets have developed systems to aid with operational efficiency. NYSE has developed the SuperDOT computer system and the NASDAQ has developed the SOES. These types of systems match buyers and sellers in a very efficient way by doing so at the best available price for both parties.
Informational efficiency refers to the speed and accuracy with which information is reflected in the available prices for trading. This type of market consist of 3 hypotheses that make up the EMH (efficient market hypothesis); weak form, semi-strong, and strong form. The weak form is implying that the market is efficient and that the price (of a stock) reflects all information and historical prices have no impact on the current price. Semi-strong form assumes that the stock price reflects all public information and financial statements therefore that information is not useful. Strong form assumes that the price of the stock reflects all private information, public information and historical information therefore insider information is not useful.
Overall the efficiency markets are as they sound: efficient. The main goal is to create speed and accuracy and assume that the prices of the stocks reflect all relevant information to the potential buyer.
Works cited:
"Weak, Semi-Strong and Strong EMH - CFA Level 1 | Investopedia." Investopedia. Investopedia, 18 Apr. 2008. Web. 03 Nov. 2015.
No comments:
Post a Comment