Premium Essay


In: Business and Management

Submitted By dfsdf
Words 3136
Pages 13
The operational efficiency emphasizes how well things function in an organization with respect to speed of execution and accuracy. In an stock exchange situation where efficiency is paramount, this is measured by factors such the numbers of orders lost and/or filled incorrectly. And importantly the time elapsed between receiving an order and its execution. People involved in this field are very aware of this and attempt to streamline their operation to mitigate errors and to achieve operational efficiency. But EMH has nothing to do with this type of efficiency.
Informational Efficiency refers to how quickly and accurately current security prices reflect all available information. All sort of information – economic reports, earnings forecasts, political announcements, opinions – is constantly enters the market. What affect does this have on security prices? And what does it mean? For example, unemployment is rising; is it good or bad for government securities holder. Or a company’s new about its merging with another! There are several of these questions and they have impact on some security or other. The question is how quickly they impact security prices. We know that in the US market (so far without the government regulation) security prices adjust rapidly and accurately to information and often without time to digest it. Often the speed with which the prices adjust is simply remarkable. The efficient market hypothesis is based on certain assumptions which in turn our market efficient.
First it assumes that there are a large numbers of participants who value securities independently and they are attempting maximize profit.
Secondly, the information enters the market randomly and that prices are unbiased reflection of all currently available information.
Thirdly, the investors attempt to adjust security prices rapidly to reflect the effect of new information…...

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