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Efficient Market Theory: A Contradiction of Terms
Title: Efficient Market Theory: A Contradiction of Terms
Category: Literature / English
Details: Words: 766 | Pages: 3.3 (approximately 235 words/page)
Efficient Market Theory: A Contradiction of Terms
Efficient Market Theory: A Contradiction of Terms
Abstract
According to the Efficient Market Theory, it should be extremely difficult for an investor to develop a "system" that consistently selects stocks that exhibit higher than normal returns over a period of time. It should also not be possible for a company to "cook the books" to misrepresent the value of stocks and bonds. An analysis of current literature, however, indicates that companies can and do "beat …showed first 75 words of 766 total…
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…showed last 75 words of 766 total…because the system adjusted the stock price to reflect the actual value of AOL stock. The previously high price did indicate the value of the stock based on the accounting practices then in effect, however misleading they may have been. At the moment that the company decided to change the accounting practices, the value of the stock then was corrected to the actual lower value. This could, reasonably, be viewed as a repudiation of EMT.
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