Financial Theories Overview
Edward E. Edgar
University of Phoenix

Financial Theories Overview
The following is an overview of 10 different financial theories prevalent today. The overview will include a brief description of the theory, an example of the theory, and other attributes of the theory. There will also be a conclusion to sum up a general understanding of the theories and their applications.
Efficiency theory
Efficiency theory has been around since the 60s and, is an extension of the efficiency theory of a capitalist society. Generally the theory is that scant resources are distributed by the owner in an efficient manner. The owner choses the best outcome for his or her investment and regulates resources and products accordingly. This is extended to the stock market in the 60s and has been a prevalent theory since. The theory as applied to the stock market says that all information of the market is fully reflected in the price of the stock and efficiently assimilated (Fama, 1970).
Examples
Generally stock returns are compared to overall market returns. A mutual fund company will compare their returns to the general stock market return and state they are a certain percentage above or below the market standard returns. Most will try to say they have beaten the market average. This is true for most investing firms and, is used as a selling point for the company or mutual fund.
Attributes
If this theory was to be taken to the extreme one would have to say that it is impossible to beat the market average returns. This does not hold true in the real world (Fama, 1970). There are funds and investments that do out-perform the market. Generally this is true but specifically it is not. Warren Buffet consistently beat the market averages and continues to do so even today. It must be considered that there is some inefficiency in the market that is exploited