The central concepts of finance Essay Example | Topics and Well Written Essays - 3000 words

The central concepts of finance - Essay Example In this case therefore, as argued by Bodie, et al, (2011), if the market is not able to predict its fluctuations, but does asses them as being likely or less likely, then the likelihood can be accessed through mathematical process using the relevant information in the market. Thus, factors such as price reflect all the relevant information that is available in terms of the total value of an asset. With the introduction and analysis of the financial efficiency, this paper provides a comprehensive analysis of the market efficiency types and the approaches to test this efficiency. After the emergence of stock market, there was a widespread concern and controversy that made most of the investors to be keen when participating in the market. The situation was caused by the fact that their approach of making their profits seemed inappropriate. Considering that the stock market is an important component of the capital market, many economists in the world developed serious concerns and intere sts in exploring the trend of stock price. In this case, even though the intentions were different, there has been a central focus on the trend of the capital market in the global financial market. As the efficient market hypothesis became known to many, it became also an important part of the school of rational expectations theory, and one of the theoretical foundations of modern economic principles. As argued by the America financial economist, Fama (1965), if the market price fully reflect the all of available information.