Efficient Market Hypothesis

Efficient market hypothesis is also referred to as the joint hypothesis problem. Efficient market hypothesis is usually a theory in investment (Waring, 2003). This theory holds that it is not possible to beat the market. This is because this investment theory believes that the market is usually efficient in terms of the available information. This theory believes that the information that the market relies on is quite efficient to be controlled by some other factors. This informs the players in the market that it is impossible to gain more than what the market has to offer in average.

This hypothesis applies three well known versions. These are classified as weak, semi strong and strong. According to Waring (2003, each of the major versions of the Efficient Market Hypothesis has a specific assumption. The weak version of the Efficient Market Hypothesis holds that the value of traded assets in the market gives an indication of all details available to the public about the past. On the other side, the semi strong version of the Efficient Market hypothesis holds that the prices reflect the publicly available information and the prices change at once to reflect the currently available details.  The strong version holds that the prices of the traded assets in the market change at once to reflect insider information also.

I believe that financial statement analysis can be performed in a way that provides significant advantage to the investor. This would be through using the best financial statement analysis such as ratio analysis. The other thing that would lead to investor advantage from financial statements analysis would be through coming up with reasonable assumptions. Misleading assumptions should be avoided so as to give the investor a true picture of an entity’s financial state of affairs.




Waring, A. (2003). Practical systems thinking. London: Thomson Learning.



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