Stock market efficiency has been a long-term debate among economists and financial experts for a long time. The Efficient Market Hypothesis (EMH) has been created, which tends to improve the efficiency of stock markets. This hypothesis acknowledges that it can be fully profound. Theoretically the efficient market can exist, but in reality this hypothesis often does not work. Many scholars are rather skeptical about stock market efficiency and are wondering what the degree of efficiency is.
According to research, an efficient market is supposed to have free access to secure information of all participants, what gives the ability to predict market prices of individual securities. Stock market efficiency can be defined by its liquidity and size. The investors must be ready to perceive that a market is inefficient. These investment strategies are required in order to make stock market efficient. According to EMH, investors are supposed to have profound funds and assurance that they can outperform the market. Actually, investment strategies may make a market efficient. It is also important for a market to be large in size. Other important features of stock market efficiency are the awareness of professional knowledge of economy and financial laws. Many experts consider that in reality the stock market can be neither completely efficient nor inefficient. The research asserts that large capitalization and international stocks are rather important to make a stock market efficient (Buffett, 2009). Though there is always a chance of failure, investments in stock markets are considered to be rather risky. If investors get into the stock market process well aware and prepared, they will have a chance to succeed.
On the other hand, the Efficient Market Hypothesis argues that stock market can be efficient because of luck, not because of professional skills. According to the law of probability, efficiency in a stock market is possible. The available information asserts that it is hard to predict the future profits due to different reasons, such as natural disasters, policy changes, competition, state of the economy and its changes. It is worth noting that external and internal factors are often out of the investor`s control. Therefore, fundamental and technical analyses can be useless in many cases (Buffett, 2009). Some professional studies acknowledge that stock market can be efficient if investors buy undervalued stocks and further sell them as overvalued ones. These experiences may be rather fragmented and not regular, what lead to debating among financial experts. Sometimes the results may be efficient, but such situation may be changeable and not steady. Though there is always a chance for a stock market to be efficient, there are many limitations to achieve this goal.
The research asserts that the stock market prices are correlated by customer satisfaction. It can often vary because of different factors, such as price changes, labor problems, working capital shortage and credit policy changes (Buffett, 2009). Investors must be rather fortune to make stock market efficient. Efficiency can be overviewed, therefore, as a kind of fortune. Nowadays, most experts admit that the stock market is more often is considered to be inefficient than efficient, because the prices are predictable. Efficient stock markets do not follow any pattern and move randomly without manipulating the stock market prices. Furthermore, a planned strategy is not acceptable to achieve efficiency.
In conclusion, stock market efficiency is possible, according to the law of probability, but it is rather difficult to achieve this goal. There are many unpredictable foreign and domestic circumstances, which can prevent efficiency. According to the Efficient Market Hypothesis, in the economic theory and practice there is always a chance for stock market efficiency.