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Efficient Market Theory: A Contradiction Of Terms - Example Papers

Efficient Market Theory: A Contradiction Of Terms

Table of Contents
Table of Contents i
Abstract 2
Discussion 1-1
References A-1

Abstract

According to the Efficient Market Theory, it should be extremely difficult
for an investor to develop a "system" that consistently selects stocks that
exhibit higher than normal returns over a period of time. It should also
not be possible for a company to "cook the books" to misrepresent the value
of stocks and bonds. An analysis of current literature, however, indicates
that companies can and do "beat the system" and manipulate information to
make stocks appear to perform above average. An understanding of the
underlying inefficient ...

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sales to take
advantage of "insider" information, sales of stocks and bonds will not
depress prices, and companies cannot "cook the books" to artificially
manipulate stock and bond prices. However, information technology and
market dynamics are based upon the workings of ordinary people and diverse
organizations, neither of which are arguably efficient nor consistent.
Therefore, we have the basic contradiction of EMT: How can a theory based
on objective mechanical efficiency hold up when applied to subjective human
inefficiency?

As a case in point, America Online (AOL) offers a classic example of how
investors can be misled by a company that uses the market system against
itself. AOL, up until early November of this year, used an accounting
system that effectively "cooked their books" and provided misleading
figures on the company's performance. Instead of accounting for its
promotion expenses and costs as a regular expense, as normal companies do,
AOL spread them over two years. ...

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Efficient Market Theory: A Contradiction Of Terms. (2007, August 25). Retrieved April 24, 2024, from http://www.essayworld.com/essays/Efficient-Market-Theory-A-Contradiction-Terms/70128

"Efficient Market Theory: A Contradiction Of Terms." Essayworld.com. Essayworld.com, 25 Aug. 2007. Web. 24 Apr. 2024. <http://www.essayworld.com/essays/Efficient-Market-Theory-A-Contradiction-Terms/70128>

"Efficient Market Theory: A Contradiction Of Terms." Essayworld.com. August 25, 2007. Accessed April 24, 2024. http://www.essayworld.com/essays/Efficient-Market-Theory-A-Contradiction-Terms/70128.

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PAPER DETAILS

Added: 8/25/2007 04:42:38 AM
Category: Economics
Type: Premium Paper
Words: 754
Pages: 3

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