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Word Count: 3,134
10Introduction 11Purpose The purpose of this report is to investigate the Internet-related stock market and the importance of EMH in its valuation and investment 12Scope Various textbooks on finance and certain web-sites were used to gather information and discuss the issues 13Limitations The limited word count of this report is a big limitation as a number of other important issues could not be covered and the current issues stated could be in a more detail form 14Background Efficient market hypothesis EMH states that the price of a security accurately reflects the information Various different types of information are relevant to pricing an asset including in the case of shares decisions made by the management of the company As information is what is important in the pricing of a share the theory of EMH is important in share valuation There has been mixing evidence of EMH Developed capital markets are usually semi-strong form and developing ones are of weak-form From past evidence it can be seen that they both produce market anomalies These are discussed later The size and potential of the Internet-related stock market is so huge Some of these stocks that have had stock prices going through the roof Most of these stocks had been highly overvalued until the point at which the market had realised and since then the market has been adjusting the prices The implication of EMH to Internet stocks is very important to investors and corporate management as it is the information that is being used to price the stocks 20EMH Theoretical framework 21Definition of Fama 1970 1991 In an efficient market the prices of securities fully reflect all available information Fama presented the efficient market theory in terms of a fair game model contending that investors can be confident that a current market price fully reflects all available information about a security and the expected return based upon this
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