Do Major Stock Markets Present Investors with the Opportunity for Abnormal Gain, and If They do, Why are We All Not Wealthy?

1.0 INTRODUCTION

M whatsoever decades have passed since Eugene Fama introduced the idea of an efficient stemma marketplace to the financial academic world; even today it still provides an penetration to stock market efficiency but still it continues to fix controversy. Everyone wants to know whether the stock market is efficient in price shares and other securities including investors, businessman and academics. The idea that by studying in this area they exponent be able to discover a stock market inefficiency which is sufficiently exploitable to make them rich, or as a minimum, to make their name in the academic community. in that location has been extensive research on the subject of stock market efficiency I intend to look at this so I can aline out weather the stock market is efficient or if there are any inefficiencies which could be exploited. The final outcome of this paper should give an dish out as to weather stock markets present investors with the opportunity for unnatural gain

1.1 THE BEGINING

The idea that certification prices in an organised market might follow a random walk was first cat forward by Louis Bachelier in 1900 for commodities traded on the French commodities markets (Rutterford, 1993:282). proto(prenominal) work dates back to 1953 when Maurice Kendall presented a paper which looked at security and commodity price movements over time.



He intended to find regular price cycles, but was unable to do so. The prices of shares locomote randomly and todays price could not be predicted by looking for at the previous days price changes.

This finding was confirmed by Fama (1965). He studied the daily proportionate price changes of the 30 industrial stocks in the Dow Jones Average for approximately five years. He discovered the serial correlation coefficients for the daily changes to be small, the second-rate being 0.03 (Rutterford, 1993:285).

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