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The topic of market efficiency has been and is likely to continue to be a matter of intense debate in the investment community. In order to understand and participate in this debate, one must understand what determines the price of stocks, and its relationship with market efficiency. In theory, the fair value of stock is its present value of future cash flows (future dividend payments). However, in practice, the market price of stock is purely determined by demand and supply. It means if investors continue buying one stock, the demand of this stock will go up, and then its price will rise, in contrast, if investors keep selling one stock, the demand for this stock decreases, then the price of the stock will fall. Therefore, a crucial question rises, what factors drive the demand and supply of certain stocks? The answer is simple, rational investors make their buying and selling decisions by collecting relevant information about stocks. Positive news or information about one stock will make investors rush to buy this stock, which increases the demand for this stock; obviously, any negative information will make investors sell this stock, this in turn, will drag the demand of this share to go down. Therefore, a set of information plays the most important role in determining the demand and supply for stocks, which will be finally reflected by price changes of stocks. How quickly and accurately the price of shares react towards any relevant information raises the issue of market efficiency!

  • 10,000 words – 45 pages in length
  • Excellent use of literature
  • Outstanding use of economic models (ARR, CARR & Single Index Model)
  • Good in depth analysis
  • Ideal for Economics Students

1. Introduction and Literature Review
The definition of market efficiency, its relationship with stock prices and three different forms
Why market efficiency matters
The methods for testing different levels of market efficiency

2. Data and Methodology
Data Description
Autocorrelation coefficients of returns
Event Studies
The calculation of average abnormal returns

3. Empirical Results
An overview of Shanghai Stock Exchange
The Indices of Shanghai Stock Exchange
Test of weak form and semi-strong market efficiency in SSE
Sample construction
The procedure of calculating and testing abnormal returns employed
Empirical results
The findings of weak form test
The semi-strong EMH test results
The calculation of abnormal returns and their characteristics
The t statistic tests for both average abnormal and cumulative average abnormal returns

4. Summary and Conclusion
Further Thoughts


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