Understanding the assumption of Market Efficiency used

in Capital markets research.

Capital Market research in accounting for the recent couple of
decades has put forward an assumption that the factor of
process to adjust prices into information is momentary or
spontaneous. This assumption affected the ways how people do
their research and try to find out the relationship between
market efficiency and capital market research. Well as per our
opinion it is difficult and complex how price is determined and it
may need a much more in-depth analysis than what is already
been done. So we will briefly discuss some of the problems
related to the market efficiency and its findings towards capital
market research.
Basically market efficiency is how the stock prices are reflecting
the information related to the prices of the stocks and as if this
information directly correlates with the prices or not. Market
Efficiency was introduced by Eugene Fama who put forward a
theory about market efficiency with the name of EMH (Efficient
Market Hypothesis) stated:
it is not possible for an investor to outperform the market
because all available information is already built into all stock
prices. Investors who agree with this statement tend to
buy index funds that track overall market performance
Here is how usually prices of stocks are determined which is
basically a representation of present value of expected future
dividends or (Pt = Vt , t) where as Vt is the stocks fundamental
value at time t.
As research in capital market related to accounting has
progressed throughout time, this dependence has attained the
position of a working assumption. For example, the price is
taken as a de facto replacement for the anticipated worth of
future dividends, and this value of expected future dividends is
reflected in the price value and also this price is the solid
fundamental point for the future price. So this hypothesis is
expected to determine the accuracy of this price value of stock
and its relation with the future value.

Assumption discussing the price is equivalency to the present

value of expected future dividends seems more clearly in the
valuation mechanism of stocks.
In the area of capital market research, this research has
produced deep reliance in market efficiency. As academics
scholars, efficacy of arbitrage mechanism is often taken as for
granted, usually presumptuous that it encompasses no
evidence of capital, and small amount of cost or risk in
evaluation. The market price is anticipated to be exact, and the
procedure by which it turn out to be correct is underestimated.
We think accounting researchers operational in the capital
market area must not undertake the process by which the
information is contained by the price. As accountants have a
relative benefit in processing the information indicates that
stimulate price movements. To use this advantage to its
maximum, we must have a vivid understanding of market
efficiency and the continuously changing behavior of price
discovery.

Market Efficiency Definition |

Investopedia http://www.investopedia.com/terms/m/marketefficiency.asp#
ixzz4Fz8MSOWJ
http://citeseerx.ist.psu.edu/viewdoc/download?
doi=10.1.1.202.7205&rep=rep1&type=pdf
Market Efficiency and Accounting Research: A Discussion of Capital
Market Research in Accounting by S.P. Kothari
Efficient Capital Markets by Steven L. Jones and Jeffry M. Netter

Capital market theory after the efficient market hypothesis By Dimitri

Vayanos, Paul Woolley