Financial experts are debating about the efficiency of stock markets. The research asserts about the Efficient Market Hypothesis (EMH). The main idea of this hypothesis is the statement that it can be fully profound. The debate about the efficient market is a result of determining whether the stock market can be efficient, and what is degree of this efficiency. Many scholars are rather skeptical about this hypothesis and consider it absolutely useless.
An efficient market can be defined as the one that has free access to secure information of all participants, what gives the ability to predict market prices of individual securities. Stock markets are overviewed by most academic and financial specialists as a game or a fun, thus individuals` skills are not important. It can be considered as a fortune. Though many people consider that, if they are well aware of the necessary knowledge of finance and its laws, they may be rather successful in stock market. Many experts consider that the stock market can be neither completely efficient nor inefficient. The research asserts that small capitalization and international stocks are less efficient than large capitalization stocks (Karz, 2011). Long term investments in stock markets as well as short term trading are considered to be rather risky. There is a chance of failure, if one gets into process unaware or unprepared. From this point of view the stock market cannot be efficient.
Currently people are facing the situation of heavy losses of their investments. The available information acknowledged that the price of stocks and bonds depends on the demand and supply. Different forecasts for the future profits of the stock market are often unpredictable because of various factors, such as external and internal. It is hard to make predictions, because external and economic factors may be beyond the control. For example, direct and indirect competition, political events population changes, weather, relative state of the economy, and others may be out of the control. The factors mentioned above have a significant influence on the prices in the stock market (Karz, 2011). Many academic and financial professionals argue it is useless to try to predict trends and sales through fundamental and technical analysis. The stock market value is correlated by customer satisfaction, which may vary because of labor problems, price changes, credit policy changes, working capital shortage, and others. All these factors may influence the efficiency of the stock market. Efficient markets, therefore, are supposed to be a kind of fortune to succeed.
Normally, the stock prices reflect the company`s future results. The stock market prices are often uncontrolled, and are not reflective of the information available in all situations. In such cases the stock market cannot be efficient. The financial crisis experienced in the recent past, may be considered to be inefficient because prices are controlled by people for personal gains. The research asserts that the stock market is now viewed as inefficient, because the prices have become predictable. In an efficient stock market move randomly without following any pattern. The stock market is inefficient in cases, where individuals are manipulating the stock market and prices. It is worth noting that unexpected national and international economic upheavals can drive stock markets into completely ominous conditions. Market trends can be deeply affected by natural causes, fund flows, domestic and foreign difficulties.
In conclusion, it is worth noting that the stock market cannot be viewed as an efficient market in the financial situation, which exists today. It is useless to make predictions. Individuals cannot predict the future trends and profits in today`s domestic and foreign environments because of different reasons.