...MARKET EFFICIENCY - DEFINITION AND TESTS What is an efficient market? Efficient market is one where the market price is an unbiased estimate of the true value of the investment. Implicit in this derivation are several key concepts - (a) Market efficiency does not require that the market price be equal to true value at every point in time. All it requires is that errors in the market price be unbiased, i.e., that prices can be greater than or less than true value, as long as these deviations are random. (b) The fact that the deviations from true value are random implies, in a rough sense, that there is an equal chance that stocks are under or over valued at any point in time, and that these deviations are uncorrelated with any observable variable. For instance, in an efficient market, stocks with lower PE ratios should be no more or less likely to under valued than stocks with high PE ratios. (c) If the deviations of market price from true value are random, it follows that no group of investors should be able to consistently find under or over valued stocks using any investment strategy. Market Efficiency for Investor Groups Definitions of market efficiency have to be specific not only about the market that is being considered but also the investor group that is covered. It is extremely unlikely that all markets are efficient to all investors, but it is entirely possible that a particular market (for instance, the New York Stock Exchange)...
Words: 489 - Pages: 2
...Efficient Capital Markets Topic 4 Davenport University FINC 620 - Financial Management June 3, 2016 Efficient capital markets Market Efficiency An efficient capital market is: “A market where information regarding the value of securities are incorporated into its prices accurately and in real time. Since the value of securities fluctuates depending on the present value of future cash flows, an efficient capital market enables these fluctuations to be reflected in the securities' current price” (Investorwords.com, n.d.). What this means is that investors who invest among the stock market try and determine if the market is efficient, and whether it accurately emulates all of the influential prominent forces that are put on prices, and affected by such forces in real time. The efficient market hypothesis (EMH) is a theory among investors that states that it is impossible to out-smart the market because the efficient market always mirrors current events and information making it impossible to veer buy stock underpriced or overpriced – prices will always reflect the fair market value based on market influences. The only way to succeed in the market is to gamble with high-risk returns (Investopedia. n.d.). How this all works is investors will buy up stock and generate cash flow into the stock market, looking for a return on one’s investment. They are not always satisfied with a return; they want to maximize the return more than...
Words: 1085 - Pages: 5
...Equality, and Efficiency Response A concept that is discussed in economics is Pareto Optimality. A Pareto optimal situation is a circumstance where a person cannot be made better off without making another person worse off. This means that resources have been allocated and distributed in a way that will result in efficiency. There would be no waste in a Pareto optimal situation. However, one could argue if Pareto optimal situations, while they are efficient, are also fair. The Pareto Optimality theory does not state anything about equality, and so the question of distribution arises. It is a fair Pareto optimal situation when two parties have equal amounts of a good, but it is also Pareto optimal when one person has all the goods and the other has none. This is where the flaws in this theory are. While reducing waste and inefficiency, it raises the possibility of inequality and the goods being distributed and allocated to one powerful person. So Pareto inefficiency does not provide basic sustenance for all. In fact, it may favor the few in power that have the capability to have more goods allocated to them. Pareto optimality will not result in Kingdom-enhancing outcomes if it benefits the rich and leaves the poor with less. Also, this means that to make the rich better off, it will continue to hurt the poor. One of Jesus’ primary messages was to love and take care of the poor. In light of this, we should look for other ways to preserve efficiency, but offer a...
Words: 337 - Pages: 2
...In agriculture, the term ‘resource use efficiency’ may be broadly defined to include three allied concepts viz. technical efficiency, allocative efficiency and environmental efficiency (Haque, 2006: 64). Analytically, technical efficiency means maximising output for given input (at the level of production possibility frontier). Allocative efficiency implies that the usage of input is minimised. Environmental efficiency, which has nowadays acquired critical relevance, implies that the production process should be sustainable. It is possible that a production process is not sustainable over time. For instance, using more water than that is replenished can reduce the ground water level which can have an adverse impact on the cultivation of crops in the subsequent years. Or, inappropriate use of fertilisers can lead to salinity affecting the soil quality. With climate change, adverse implication could also be because of activities outside the production process. At any given time, for given prices, the allocative efficiency (AE) is the ratio of ‘marginal value of product per unit input’ to ‘marginal cost per unit input’ (i.e. AE = MVP/MC). AE is optimal at unity. The overall economic efficiency (EE) is a product of technical efficiency and allocative efficiency (EE = TE*AE). If the latter (i.e. AE) is unity, then economic efficiency is the same as technical efficiency, that is, one ensures maximum income at least cost (Fan,1999, Jha et al, 2000). Factor Combination and Resource...
Words: 376 - Pages: 2
...is “Ways of improving efficiency of enterprise”. It is considered to be topical nowadays because of some reasons. Firstly, today’s period of economic development is characterized by high competition in the market which makes all businesses seek foe different ways of increasing their efficiency. Enterprises are forced to look for the steps which help them work effectively without wasting time, money or energy. The pace of business activity is getting faster and faster. Employees often have to work under pressure dealing with performing lots of task at the same time and under different circumstances. It result in the fact that employers have to provide their employees with the possibility to work in the hotel rooms, airport, lounges, remote branches etc. Secondly, at the present moment mankind is facing with the problem of exhaustion of mineral and natural resources which makes numerous plants, factories and enterprises be more economical in the use of the resources. They need to organize their production in the way which lets them produce a specific outcome effectively produce a specific outcome effectively with a minimum amount of waste, expense and unnecessary effort. A lot of scientists and businessman have raised the problem of efficiency in their articles and books. In particular, outstanding Italian sociologist, economist and philosopher F. Parreto made a great contribution into the study of the problem of efficiency. According to Paretto efficiency is a state of economic...
Words: 9065 - Pages: 37
...The Price mechanism can be relied upon to provide efficiency The price mechanism is the way in which changes in prices of commodities affects the demand and supply of goods and services, affecting both the buyers and the sellers. Efficiency is about making optimal use of scarce resources to satisfy the wants and needs of consumers. Changes in the demand and supply model can help us to understand how efficient a market is. For instance, the example of increase in demand of books can be analysed to address the relationship of price and efficiency. The increase in demand will lead to an increase in prices resulting in movement along the supply curve. Price mechanism allows the suppliers to understand the needs of the consumers, hence leading to an increase in supply and therefore greater efficiency. Pareto efficiency plays a vital role in defining efficiency, it consists of both productive and allocative efficiency. It is the point at which there is no way of making someone better off without making anybody else worse off. The concept of Pareto efficiency can be used to evaluate different ways of allocating resources. Productive efficiency is an economic level at which the economy can no longer produce surplus goods without lowering the productive level of another product. This can only happen when the economy is working along its PPF, and the average output cost is minimised. Allocative efficiency is when the producers only produce those goods or services that are in...
Words: 1027 - Pages: 5
...‘The price mechanism can be relied upon to provide efficiency’ Discuss. The price mechanism is the phenomenon where the market forces of supply and demand interact to reach an equilibrium price and quantity such that the quantity demanded by the buyers is exactly equal to the quantity supplied by the sellers. In a free market economy, where there is no government intervention, the allocation of all resources happens through the price mechanism. Meaning that the price mechanism is what balances the production and consumption of goods. When the demand for a particular good increases, its price will increase since the increase in demand means that there is currently a shortage of the good in the market. The new higher rate works as an incentive for sellers to supply more of the good with the expectation of increasing their profits. However, the increase in supply will lead to a fall in the price, and the sellers will reduce the quantity of the good produced. Thus, the price will eventually be pushed back to the equilibrium market price. In contrast, should the demand for a particular product fall, then there will be an excess supply in the market for the specific commodity. The producers of the product will then be forced to reduce the market price to eliminate the surplus of the good. The new lower price will indicate to the sellers that they should produce less of the particular product since they can’t make as much profit as before by selling it. The fall in the supply...
Words: 1007 - Pages: 5
...‘The Price Mechanism Can Be Relied Upon To Provide Efficiency’ I will first discuss this in very simple terms concerning such matters as the law of supply and demand. I will then present the situations in which inefficient results are created and also areas in which Pareto efficiency is of particular significance. Generally, if the demand for a good increases its price will increase as supply becomes limited for consumers. This in turn acts as an incentive for producers to supply higher output and as supply increases the price will eventually go down and equilibrium will be achieved. This also works for the opposite as demand falls. In addition to this, in a perfectly competitive market firms will aim to produce where marginal revenue (MR) equals marginal cost (MC). This creates efficiency because if marginal revenue is higher than marginal cost then consumers are worse off because they are being charged high prices and thus rival competitors will take advantage with a lower supply price. On the other hand, if marginal cost is higher than marginal revenue then the firm is not using their resources efficiently as each additional unit incurs a marginal net cost. The only exception to this would be if the point at which MR is equal to MC was lower than the average cost (AC) curve, since the marginal revenue would not even cover the average cost. Therefore, we can see how the law of supply and demand and the result of a perfectly competitive market allows the price mechanism to...
Words: 1071 - Pages: 5
...Hupkrapong Royal Project: Efficiency, Sustainability and The Making of Royal Hegemony By Pluemkoon Bualuang, 5304640773 Introduction Hupkrapong Royal Project is one of the most well known projects initiated by His Majesty the King, Bhumibol. It is located in Tambol Hupkapong, far rural area of Amphoe Cha-am of Phetchburi province. It was started in 1964, when His Majesty the king visited in the rural and impoverished area in this province, which the residents living there were majority farmers who had very low standard of living and seemed like no ways to improve because they had to rent land from landlords and payback the huge amount of debts. Thence, the king had an idea of providing the rights over the land to some of these farmers. After 7 years under the process, The Hupkapong royal project was successfully done, by providing the right over 10,000 rais of land to 84 families of poor farmers to make use and established the Hupkapong cooperative collecting the local products selling to outside market. Before having the right over the land, those people would have to go to the demonstration school in order to learn the technique how to plant for two years. After that they will be given the right of up to 25 rais of land to make use of it. This right cannot be transferred to someone else apart from their family members. However, since the soil quality of this area was not in a very good condition and the natural water supply was not enough. Therefore, the king gave...
Words: 2687 - Pages: 11
...On 5th January 1914 the Ford Motor company announced that it would more than double the wages of its workers. Briefly describe the history of this decision and relate to the theory of incentives and efficiency wages. When Henry Ford introduced the five-dollar day on the 12th of January 1914, many of his competitors might have questioned the success of this policy. Today, it is well established that Ford’s strategy was a key reason for the company’s early success and is often documented as an exemplary application of the efficiency-wage theory. This essay will briefly outline the history and implications that have led to the five-dollar day and relate it to the theory of incentives and efficiency wages. Henry Ford founded the Ford Motor Company in 1903. During the first few years the company remained relatively small and it was only with the introduction of the T-Model in 1908 and the transformation to assembly line production that Ford could expand his market share and increase the company’s profitability. However, as Raff and Summers noted, assembly line production resulted in a high degree of specialisation of the different production steps. Work at Ford’s became more and more menial, leading to dissatisfaction among the workforce, which reflected in a significant annual turnover of 370% in 1913. Although there was no evidence that Ford had problems filling his vacancies, the absenteeism and high turnover undoubtedly resulted in costs that Ford had aimed to reduce. It...
Words: 1027 - Pages: 5
...1.0 INTRODUCTION Payroll consists of the process by which a business pays its employees for work performed during a specific period. A payroll system allows businesses to follow a set series of processes in order to make timely, correct payments in compliance with government regulations. A payroll system may be manual or computerized and handled in-house or outsourced to another provider. 2.1 OBJECTIVES A payroll system should be geared toward paying employees what they earn within a reasonable time frame and accurately tracking paycheck amounts as well as tax and benefit withholdings. Payroll systems should be thorough without being overly complex and cumbersome, and they should be designed thoughtfully enough to work well with a minimum of oversight. Having a well-designed payroll system is in the best interest of employees, business owners and human resources staff. 2.2 Scope And Limitation Accuracy Accuracy is an important objective of a payroll system, because employees are entitled to be fairly compensated for the work they have done, and a company's financial well-being depends on not overpaying employees for the time they have worked. In addition, businesses are liable for payroll taxes on employee earnings as well as remitting payroll taxes that have been withheld from employee paychecks. Consistency A payroll system has many components, and the information in each section should be internally consistent. An employee's weekly wages over the...
Words: 333 - Pages: 2
...1.0 INTRODUCTION Payroll consists of the process by which a business pays its employees for work performed during a specific period. A payroll system allows businesses to follow a set series of processes in order to make timely, correct payments in compliance with government regulations. A payroll system may be manual or computerized and handled in-house or outsourced to another provider. 2.1 OBJECTIVES A payroll system should be geared toward paying employees what they earn within a reasonable time frame and accurately tracking paycheck amounts as well as tax and benefit withholdings. Payroll systems should be thorough without being overly complex and cumbersome, and they should be designed thoughtfully enough to work well with a minimum of oversight. Having a well-designed payroll system is in the best interest of employees, business owners and human resources staff. 2.2 Scope And Limitation Accuracy Accuracy is an important objective of a payroll system, because employees are entitled to be fairly compensated for the work they have done, and a company's financial well-being depends on not overpaying employees for the time they have worked. In addition, businesses are liable for payroll taxes on employee earnings as well as remitting payroll taxes that have been withheld from employee paychecks. Consistency A payroll system has many components, and the information in each section should be internally consistent. An employee's weekly wages over the...
Words: 333 - Pages: 2
...Difference Between Efficiency and Effectiveness Efficiency refers to doing things in a right manner. Scientifically, it is defined as the output to input ratio and focuses on getting the maximum output with minimum resources. Effectiveness, on the other hand, refers to doing the right things. It constantly measures if the actual output meets the desired output. “Effectiveness” is also getting the right things done. This is where the efficiency is different than effectiveness. With efficiency, is to get the task done faster, easier, or better way. But with effectiveness, there always an initial question as to “what to do”? We need this measure for marketing activities and business processes since it helps us see when we are minimising resources or time needed to complete a process, i.e. we are keeping our costs low. In digital marketing, for example, efficiency involves increasing conversion rates and reducing costs of acquisition. It is still used in many large organisations and can still be used to today to help translate vision and strategy into objectives and then, through measurement, assessing whether the strategy and its implementation are successful. I’m a firm believer in shopping around for the best deal and I commend organizations that do so. My goal is to bust this myth open and expose the fact that focusing solely on efficiency is no longer sufficient to remain competitive in today’s business world. Corporate executives need to ask if their event portfolio has...
Words: 408 - Pages: 2
...Article 1 Title of Journal Article: Testing for the Weak-Form Market Efficiency of the Dar es Salaam Stock Exchange DETAILS:- Author(s)- Year- Name of Journal- Volume- Issue- Page number | Authors : Yilmaz Guney - University of Hull, Gabriel Vitus Komba - Mzumbe University, School of BusinessDate: October 21, 2015. | - RESEARCH OBJECTIVES(s)-RESEARCH QUESTION(s) | This study investigates into the weak-form efficiency of the Dar es Salaam stock exchange (DSE), a frontier market, in Tanzania. | - HYPOTHESES- VARIABLES:Eg: Dependent variables, Independent variables | The weak-form efficiency of the Dar es Salaam stock exchange (DSE), a frontier market, in Tanzania.Dependent Variable: Weak-form efficiency of DSE | METHODOLOGY:Eg: Scope of study, Respondent type & number, Analysis used | The study covers the period from January 2007 to December 2014. To establish the consistency and robustness of the obtained conclusions, we employ different tests (i.e., Augmented Dickey-Fuller test, variance-ratio test, and Ranks and Sign test) to examine the hypothesis that the returns based on the price and return indices follow a random walk process | FINDINGS & DISCUSSION:Eg: Types of relationships (support or not), Reliability & variance | Wright (2000) shows that ranks and sign tests can be exact, and have better power properties than the conventional variance-ratio tests. Moreover, they demonstrate that rank-based variance-ratio tests have, generally, more power than...
Words: 3831 - Pages: 16
...Efficiency and Collaboration Proposal Microsoft Excel has been used for many years by Party Plates to store and compile specific personnel data, but it does limit us when it comes to create a relation between the stored data. In reality, Excel is not a database, and its practicality is somewhat limited since Excel is a “flat file database” which means that the data inputted is stored in a single file in the form of rows and columns. There are no relationships or links between records and fields in Excel except for the table structure (Chung, 2013). This is when Access becomes an interesting tool for Party Plates to convert our current data stored in Excel into a relational database. A relational database is able to use data stored in different tables and relate them together in order to easily find specific information. Access also has the advantage of sorting data based on any field and would easily allow Party Plates to generate reports that contain only specific fields from each table. Once we transfer our data to Access, we would be able to add more tables and link them, create queries, share and update between authorized users in the company, and create extensive reports and forms. Microsoft’s Access is a database management tool that stores large volumes of information together. It has many benefits for the work environment. One benefit is that it is user friendly and training does not take an extensive amount of time. It allows you to sort, analyze, summarize and...
Words: 609 - Pages: 3
