I was thinking a few days back at how surreal investing must appear to investors who may have only started in 2020. I have found myself having an ever increasing number of conversations with newer investors that contain the phrases; ‘this is not normal’ fairly often.
Common assumptions would dictate that markets tend to be fairly efficient in developed countries. However, it is no secret that equity markets are largely driven by human emotion during uncertainty, thus the supply and demand will be reflected in the share prices.
Bankrupt companies should not be trading at higher levels than before they were bankrupt, as we have seen this year. But what is an efficient market? Today, we seek to address that question, and beef up your insight in that area.
The idea behind an efficient market is one that would absorb new information in a fast and rational manner and then reflect this new information into asset prices. A fully efficient market should reflect a…