Efficient Market Hypothesis

This is the Full Colour version of the book including all the research data and analysis tables in the appendices. There is also a Black & White version, available at a discount, that does not include the research data and analysis tables.What is a Stock Market? How do stock markets operate? Who invests in a stock market and when is it an appropriate tool for investment? Why do we care if a stock market is efficient or not? Where can we find evidence of market efficiency? With what tools can we test market efficiency?These are some of the questions that this book approaches. The Efficient Market Hypothesis (EMH) is a theory in financial economics, developed by Eugene Fama, which states that asset prices fully reflect all available information. Thus, it is implied that stocks always trade at their fair value, making it impossible for investors to "beat the market" via technical or fundamental analysis, since market prices should only react to new information.There are three variants of the EMH: "weak", "semi-strong", and "strong" form. The weak form of the EMH claims that prices already reflect all past publicly available market information. The semi-strong form claims that prices reflect all publicly available information, thus price changes occur to reflect new publicly available information. The strong form adds to this that prices instantly reflect even hidden private "insider" information.Testing the EMH is no easy task: Quantifying the availability of information and its effect on prices and market efficiency is challenging, making research on the subject difficult, time consuming and open to criticism. However, anecdotal evidence suggests that markets at best reach semi-strong form efficiency, with weak form efficiency being the norm. However, even this is challenged by the critics of EMH, via concepts such as Behavioural Finance.This book aims to familiarise the reader with the concept of EMH, covering the fundamentals and relevant literature. We then discuss market efficiency tests for Weak Form Market Efficiency, examining in more detail the day-of-the-week effect and its significance on stock market efficiency. The day-of-the-week effect is defined as a pattern where a certain day of the week has abnormal returns continuously. It is an anomaly that violates the random walk hypothesis, and thus implies that a market is not Weak Form efficient.We put theory into practice through the Empirical Research section which is divided into two parts, looking at two different approaches to researching the day-of-the-week effect, via the examination of actual research examples on a small European stock exchange. Both of these Thesis tested the hypothesis of random walk to determine the authenticity of weak form market efficiency for a small emerging stock market within the EU (the Cyprus Stock Exchange).