What is market efficiency

Market efficiency

According to the theory of market efficiency or efficient markets, all information that is relevant for the formation of prices or rates on the securities or foreign exchange market is immediately and completely reflected in the rates. If this hypothesis is correct, price forecasts and hedging could not achieve better results than without the use of these instruments. A prerequisite for market efficiency is a large number of qualified, rationally acting market participants with sufficient financial resources, who can correctly process any new information and, through appropriate transactions, cause price adjustments in broad, high-turnover markets that keep prices constantly in balance. This explanation of the course is the content of the random walk hypothesis. In its simplest form, it says that price changes can be described as random mechanisms and that prices cannot therefore be successfully forecast. I. Ggs.z. Randomwalk Hypothesis is available to the view of technical analysis. This assumes that the apparently random, successive course changes form typical and characteristic formations from which statements about further course development can be derived. To explain the efficiency thesis, a distinction is made between 3 versions of market efficiency according to the type of information processing in the courses: 1. The weak form of the efficiency thesis includes that past prices are fully reflected in current prices and that an above-average successful price forecast based on the analysis of past prices is not is possible. 2. The moderately strong (-strict) form of the efficiency thesis states that not only the past courses, but also all publicly available information are contained in the courses and that this can therefore no longer be used to produce an above-average successful price forecast. 3. The strong (strict) form of the efficiency thesis finally asserts that all information is discounted in the current exchange rates and that even market participants with inside information cannot achieve above-average profits in the long term.