The global financial crisis and the efficient market hypothesis The 2008 global financial crisis is considered the worst financial crisis since of the Great Depression, a period of turbulence and sharp declines in the economies of the United States, Europe and other parts of the world. Over the next five years, the financial crisis caused a crippling global recession that saw a trillion-dollar nationwide decline in household wealth and prolonged mass unemployment. For years, economists have debated the cause, and one particular argument put forward is the efficient market hypothesis (EMH), the theory that in response to any new information, competitive markets rapidly make price adjustments. Due to all the information available to the public, the average investor is unlikely to achieve above-normal returns. Efficient market ideas are one of the most controversial economic theories, however, difficult to test. There is no quantifiable measure of market efficiency and it is not possible to predict the timing of a share price decline, as stated by the EMH. Although the EMH provides intriguing insight, it is limited. The 2008 global financial crisis demonstrates that the theory is fundamentally false when applied to the events of the global crisis. This article seeks to refute the EMH's claims of responsibility for the 2008 global financial crisis by carefully examining the theory and presenting arguments that are strongly supported by research and knowledge of economic and behavioral theories. Say no to plagiarism. Get a tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an original essay The efficient market hypothesis (EMH) suggests that the global financial crisis was caused by continued reliance on all available information about stocks. Regulators and investors have largely underestimated looming asset price bubbles due to failure to authenticate the actual values ​​of exchange-traded securities. Created by Eugene Fama (1970), the EMH presents a plausible theory in which it suggests that investors cannot sell stocks at inflated prices or buy undervalued stocks. This is because shares will always trade at their fair value. The Efficient Market Hypothesis is defined as “the proposition that in efficient markets prices “fully reflect” available information is so general as to have no empirically testable implications” (Fama, 1970, p. 384). In this simpler definition, in an efficient market, investors cannot consistently beat the market, as market prices react to changes in discount rates and new information. For markets to be efficient, one can contrast the conditions necessary to define a perfect capital market, which is informationally efficient, has perfect competition among participants and is frictionless. Efficient markets, however, are less restrictive. Efficient capital markets can still exist in a frictionless market when all relevant information is fully reflected. The three variants of EMH; The weak or narrow, semi-strong and strong forms that demonstrate this type of information should be reflected in the current prices of financial assets. In the weak form, the EMH states that current prices already reflect any information contained in historical trading volume or price series. Therefore any future price movement predicted by any historical pattern would already be taken advantage of. (Malkiel, 2009) The variantsemi-strong believes that any information critical to the stock market or about individual companies will be immediately reflected in stock prices. “Therefore, investors cannot profit from acting on favorable news regarding a company's sales, earnings, dividends, etc., because all available publicity will already have been reflected in the company's stock price” (Malkiel, 2003, page 9). The strong variant form suggests that any knowable and known information is already reflected in the market prices. In this extreme view, investors cannot even benefit when they conduct illegal insider trading. (Malkiel, 2011) This form is never completely satisfied, but identifies an extreme range of market efficiency. Ray Ball (2009) examines that the EMH is composed of two intuitions. The first illustrates the correspondence between costs and revenues imposed by competition from new entrants. This erases or reduces excessive profits. The second intuition corresponds to Fama's view that the function of information flow to the market modifies asset prices. (Ball, 2009) Ball interprets the EMH using these two insights that competition from market participants is the cause of returns commensurate with the costs of using available information. (Ball, 2009) The efficient markets hypothesis assumes that; Events such as news of initial public offerings, new stock market listings, mergers, dividend actions, stock splits, and earnings surprises cause stock prices to respond efficiently. (Malkiel, 2003) Consequently, fundamental changes in value cannot be immediately or entirely reflected in market prices due to the inhibition of both non-uniform transaction costs and differences in investor awareness. According to Malkiel, for EMH, anomalies in returns can only occur when the economist applies specific models to obtain them. These uncommon effects tend to disappear when different models are adjusted for risk and when measures are calculated using different statistical approaches, since they were not what the model was testing. (Malkiel, 2003). The EMH follows the price series, where all subsequent price changes represent random deviations from previous prices, otherwise known as a "random walk". “The logic of the random walk idea is that if the flow of information is unhindered and the information is immediately reflected in stock prices, then tomorrow's price change will only reflect tomorrow's news and will be independent of price changes of today” (Malkiel, 2003, page 59). The value of an information structure equation that equals the decision maker's expected utility, which considers the factors of receiving the message, the probability of an event, and the outcome of the action. : V (?) = Sm q (m) maxa S p (em) U (a, e) - V (?0). The value of information can be determined net of costs, transaction costs or costs incurred in transmitting and evaluating messages considered if the capital market is efficient. Similar to the Capital Asset Pricing Model (CAPM), E(ri) = Rf + ßi( E(rm) - Rf). Where E(rm) is the average capital market return, Bi is the beta value of financial asset i, Rf is the risk-free rate of return and E(ri) is the required return on financial asset i. The CAPM is used to predict the expected return on risk assets. It consists of the trade-off between return and risk, where the greater the risk, the greater the return. It is also an idealized illustration of the expected returns on capital investments that price securities in the market. Its charm.