Moving Averages and

Efficient Market theory.

MOVING AVERAGE

The market indices do not rise or fall in

straight line. The upward and downward
movements are interrupted by counter
moves.
The underlying trend can be studied by
smoothening the data. The smooth the
data moving average technique is used.
Stock price and stock prices’
moving average.
 Buy and sell signals are provided by the
moving averages.

 Moving averages are used along with the price

of the scrip.

 The stock price may intersect the moving

average at a particular point.
 Downward penetration of the rising
average indicates the possibility of a
further fall and gives the sell signal.

 Upward penetration of a falling

average would indicate the possibility
of the further rise and gives the buy
signal.
INTRINSIC VALUE
 The actual value of a company or an asset based on an
underlying perception of its true value including all
aspects of the business, in terms of both tangible and
intangible factors. This value may or may not be the
same as the current market value.
Difference Between Fundamental and
Technical Analysis
 Fundamental analysis is a method of evaluating
securities by attempting to measure the intrinsic value of
a stock. Fundamental analysts study everything from the
overall economy and industry conditions to the financial
condition and management of companies. It try to find
out the long term value of shares.
 Technical analysis is the evaluation of securities by
means of studying statistics generated by market
activity, such as past prices and volume. Technical
analysts do not attempt to measure a security's intrinsic
value but instead use stock charts to identify patterns
and trends that may suggest what a stock will do in the
future. It predicts the short term price movement .
 Fundamental analysts analyze the stock based on the
specific goals of the investors. They study the financial
strength of corporate, growth of sales, earning and
profitability. They also take into account the general
industry and economic condition.
 The technical analyst mainly focus the attention on
the past history of prices. Generally technical analyst
choose to study two basic market data- Price and
volume.
 Fundamentalists are of the opinion that supply and
demand for stocks depend on the underlying factors.
The forecasts of supply and demand depend on various
factors.
 Technicians opine that they can forecast supply and
demand by studying the price and volume of trading.
EFFICIENT MARKET THEORY
 Efficient market theory states that
the share price fluctuations are
random and do not follow any regular
pattern.
BASIC CONCEPTS
 Market Efficiency.
1.Operational efficiency.
2.Informational efficiency.

 Liquidity Traders.
 Information Traders.
 MARKET EFFICIENCY
The accuracy and the quickness in
which the market translates the
expectation into prices are termed as
market efficiency.
The Random Walk Theory
 In 1970, FAMA stated that efficient
markets fully reflect the available
information.
 If markets are efficient, securities
price reflect normal returns for their
level of risk.
 FAMA suggested that efficient market
hypothesis can be divided into 3
categories.
1.Weak form of EMH
 The type of information used in the weak form
of EMH is the historical prices.
 Current prices reflect all information found in
the past prices and traded volumes.
 Future prices cannot de predicted by analyzing
the prices from the past.
 In the weak efficient market short term traders
may earn a positive return.
2.Semi strong form
 The semi strong form of the efficient market
hypothesis states that the security price
adjusts rapidly to all publically available
information.
 The prices not only reflect the past price data,
but also the available information regarding the
earnings of the corporate, dividend, bonus
issues, right issues, mergers and acquisitions
and so on.
3.Strong form
 The strong form states that all
information is fully reflected on
security prices.