two short finance papers, business and finance homework help

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fhcrell

Business Finance

Description

1.

This is the first of two topics that I want you to explore and compose a short paper concerning.

Market Efficiency

In this paper, I want you to reference 3 outside sources. There are HUNDREDS, so I would not imagine that any of you would have the same reference. In this paper, I want you to find information and write up a short paper on: what market efficiency means, what it means for large institutional investors attempt to beat the market, and why this influences the way that small investors tend to invest. I also want to you find reference sources to discuss whether markets are indeed efficient or is this simply not possible.

The paper should be 3 pages and length and on the 4th page, list your references. I do not require a formal citation format, simply give me the source of you information.

2.

This is the second of two topics that I want you to explore and compose a short paper concerning.

Arbitrage

In this paper, using 3 outside sources, discuss how arbitrage works, how an investor could use that to profit, and how the concept of market efficiency could hamper its effectiveness. You should be able to find an almost unlimited supply of resources on this one.

The paper should be 3 pages and length and on the 4th page, list your references. I do not require a formal citation format, simply give me the source of you information.



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Explanation & Answer

Here is the answer. Thanks

Introduction
Financial Market efficiency is an important and interesting topic in finance as based on
the market efficiency the nature, depth, and sophistication of a market is understood. Market
efficiency is the degree to which all available information are reflected on the prices of
securities. This papers aims at discussing the concept of market efficiency, understanding
different forms of market efficiency, and implication of market efficiency in the trading activity
and market participation of the large institution and small investors.
Market Efficiency, Forms of Market Efficiency, and Implication of Market Efficiency
Market efficiency
The term ‘market efficiency’ is termed by the economist Eugene Fama in 1970 in his
‘Efficient Market Hypothesis’ theory (Fama, 1970). An efficient financial market is a market in
which security prices reflect all available information and instantly adjust to any new
information (Thaler & Barberis, 2002). An allocatively efficient financial market is one in which
funds are channelized and used in most socially useful manner (Petty, Titman, Keown, & Martin,
2015).
According to Fama (1970), an efficient financial market is a market in which prices
always reflect the information. According to Jarrow and Larsson (2011), efficient market is one
in which market prices of the investments are the unbiased estimates of the true values of these.
Different Forms of Market Efficiency
Based on the reflection of information sets in the asset prices, three forms of market
efficiency can be considered (Petty, Titman, Keown, & Martin, 2015). These forms of market
efficiency are as follows-



Weak Form Market Efficiency: When all public and insider information are fully
reflected on the asset prices (Petty, Titman, Keown, & Martin, 2015). When market is
weak form efficient, it is not possible to make excess profit through technical analysis but
it is possible to make excess profit (outperform market) through fundamental analysis
(Thaler & Barberis, 2002).



Semi- Strong Market Efficiency: When all public information are fully reflected on the
asset prices (Petty, Titman, Keown, & Martin, 2015). When market is semi- strong form
efficient, it is not possible to make excess profit through technical or fundamental
analysis but it is possible to make excess profit (outperform market) through insider
information.



Strong Form Market Efficiency: When all public and insider information are fully
reflected on the asset prices (Petty, Titman, Keown, & Martin, 2015). When market is
strong efficient, the only profit made by...


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