Date of Defense

4-18-2014

Date of Graduation

6-2014

Department

Finance and Commercial Law

First Advisor

Jim DeMello

Second Advisor

Christopher Korth

Third Advisor

Onur Arugaslan

Abstract

This paper would investigate, through a literary review, the validity the Efficient Market Hypothesis (EMH) proposed by Eugene Fama in 1970. Fama defines "an efficient market as a market in which prices always reflect the recent available information...”. Since then, certain market anomalies have cropped up which challenge the theory. For example, during a twenty minute span on May 6th, 2010, Wall Street experienced a period of extreme volatility. The Dow Jones Industrial Average of major US stock prices fell nearly 1000 points, making this the largest ever same-day point decline. This drop, subsequently known as the Flash Crash, caused a temporary loss of more than $1 trillion in market value. Accenture’s market capitalization was nearly zero after its stock briefly traded down to $.01 per share. During that same time, Sotheby's stock soared from $34 to $100,000 a share, temporarily giving it a market capitalization of $6 trillion, roughly equivalent to the gross domestic product of China. In this paper, I would seek to survey the literature in attempts to explain (or explain away) those market anomalies in terms of the EMH. Additionally, I would seek to extend the discussion to security valuation methods as well. Furthermore, given the information I find I would like to discover implications of the aforementioned topics with the retail investor in mind; specifically, if the market is “efficient” or “inefficient” how should investors behave?

Access Setting

Honors Thesis-Restricted

Download

Share

COinS