Each reply must be 275–500 words and
include at least two scholarly citations in current APA format.
DB#1 LONNIE KING
Discussion: Efficient Market Hypothesis
The efficient market hypothesis is an economic concept that has been researched extensively and consists of three different versions: weak, semi-strong, and strong. Efficient market hypothesis suggests “that the stock price is the reflection of the information available in the market” (Kumar et al., 2020). Unfortunately, information leading the market does not mean that it is accurate information. An idea associated with efficient market hypothesis is known as the “random walk” idea. Random walk means “if the flow of information is unimpeded, and information is immediately reflected in stock prices, then tomorrow’s price change will reflect only tomorrow’s news and will be independent of the price changes today” (Malkiel, 2003). Many investors contend that the stock market can be somewhat predictable at times making it easy to grow money. This goes against Fama’s efficient market hypothesis. The article, The Efficient Market Hypothesis, the Financial Analysts Journal, and the Professional Status of Investment Management explains that “investment management involved some measure of skill, but the necessary skill was minimal and easy to acquire. The efficient market hypothesis (EMH) that developed from Fama’s work for the first time challenged that presumption” (Brown, 2020).
Throughout research of the Efficient Market Hypothesis, I have found that there are many differences when it comes to those who refute and those who support the efficient market hypothesis. “According to the efficient market hypothesis, there is no room for excess returns, although later on, different anomalies are found and investors gain excess returns even with the existence of the efficient market hypothesis” (Ying et al., 2019). With the ability to earn a large sum of money in a short period of time, people tend to spend money rapidly. Learning about the hypothesis theory and how it pertains to the stock market does help investors understand how risky it can be. “Whoever loves money never has enough; whoever loves wealth is never satisfied with their income. This too is meaningless” (Ecclesiastes 5:10, NIV). With the use of the market hypothesis, investors can repeatedly earn large sums of money over time. The success of gaining a large cash payout many times will ignite investors to invest again and again. Therefore, bringing life to the scripture found in Ecclesiastes that putting the love of money before God is meaningless. If we are content and wise with our investments as well as careful with our spending, the money we earn can last a much longer time.
In conclusion, using the efficient market hypothesis theory has the potential for an individual to collect a large sum of money by playing the stock market. It can also leave the investor with nothing. Christians investing their money wisely, while keeping an eye on the market, could result in higher earnings that can be used for the glory of God. At the same time Christians should take heed and not get caught up in allowing money to become their god.
Al Hanbali, A., Saleh, H., & Ullah, N. (2022). Two‐Threshold control limit policy in condition‐based maintenance. Quality and Reliability Engineering International, 38(4), 2170–2187. https://doi.org/10.1002/qre.3069 (Links to an external site.)
Brown, S. J. (2020). The efficient market hypothesis, the financial analysts journal, and the professional status of Investment Management. Financial Analysts Journal, 76(2), 5–14. https://doi.org/10.1080/0015198x.2020.1734375 (Links to an external site.)
Malkiel, B. G. (2003). The efficient market hypothesis and its critics. Journal of Economic Perspectives, 17(1), 59–82. https://doi.org/10.1257/089533003321164958 (Links to an external site.)
New International Version (NIV) – Version Information – Biblegateway.com, https://www.biblegateway.com/versions/New-International-Version-NIV-Bible/ (Links to an external site.).
Ying, Q., Yousaf, T., Ain, Q. ul, Akhtar, Y., & Rasheed, M. S. (2019). Stock investment and excess returns: A critical review in the light of the efficient market hypothesis. Journal of Risk and Financial Management, 12(2), 97. https://doi.org/10.3390/jrfm12020097 (Links to an external site.)