The Efficient-Markets Theory

Abstract

In Chapter 1 we reviewed the raison d’être of the stock market and especially its role in the setting of share prices. Academics and practising investors have sought to ‘measure’ the performance of the pricing mechanism and to apply a description to the market. The currently prevailing description is the efficient-markets theory (E.M.T.). The E.M.T. has gained a broad level of acceptance as a description of the major stock markets, notably the New York Stock Exchange, the American Stock Exchange (both of the United States) and the United Stock Exchange (United Kingdom); the description has also been applied to other well-regulated markets although there has been a lesser amount of empirical testing.