英语论文网

Explaining the Financial Crisis of 2007-2009 by Efficient Markets Hypothesis

Student Name:
Student Number:
Tutor:

Content

1.0 Introduction 3
2.0 Efficient Markets Hypothesis 3
3.0 Explaining the Financial Crisis of 2007-2009 by EMH 4
4.0 The Behavioral Finance 6
5.0 Conclusion 7

Reference 9
 
1.0 Introduction
In 2007, the U.S. subprime mortgage crisis caused the global financial crisis which is serious affect the global financial markets and securities markets. Scott (2009) indicated that every country has already put this financial crisis down to the excess financial innovation or lack of financial supervision for the financial markets, so that improving the financial regulation seems so necessary for the securities market. The Efficient Markets Hypothesis plays an important role in the financial crisis of 2007 to 2009, because of it direct related to the causes of subprime mortgage crisis. In addition, the traditional financial theory thought that the securities investors should be rational for maximizing their returns. However, with the development of the behavioral finance, the researchers found out that the subjective factors of investors affect the decision-making for investment and stock pricing (Frankel, 2009). It has pointed out that the behavioral finance can help and offer better explanations for the behavior of investors and financial markets. 

2.0 Efficient Markets Hypothesis
Neely, et al (2009) has shown the definition of the Efficient Markets Hypothesis (EMH) is that prices of securities can fully reflect all available information about securities. There are three versions of the EMH, which are weak, semi-strong and strong forms of efficiency. For improving the efficiency of the market, the basic question is to solve the problems in the process of pricing securities which related to the information disclosure, information transmission, information interpretation, and information feedback (Boettke, 2010). Therefore, the EMH mentioned that everyone in the efficient market is rational economist, so that every company’s stock in the financial market is supervised by these people. Secondly, the price of securities can reflect the balance between demand and supply for these rational economists in the EMH. That means it is equal between the stocks’ prices were overvalued and the securities’ prices were undervalued. It indicates it has the possibility of arbitrage if exists disparity between these two, so that people will buy or sell shares for keeping balance immediately. In addition, Boettke (2010) has mentioned the most important point for EMH is that information efficiency, which means the stock’ price will be changed by the changing of information. Therefore, it shows that two signals for weighting if the market is efficiency are: if the stock’s price can be changed by the relevant information and if the relevant information are fully disclosure and distributed for making every investor get the same information at the same time. 

3.0 Explaining the Financial Crisis of 2007-2009 by EMH
The financial crisis of 2007-2009 is caused by the American subprime crisis, which is the global financial storming. Hillman (2009) pointed out this financial crisis made the world’s m本论文由英语论文网提供整理，提供论文代写，英语论文代写，代写论文，代写英语论文，代写留学生论文，代写英文论文，留学生论文代写相关核心关键词搜索。