Market Efficiency Quiz

Study Notes

Externally Efficient Market

An externally efficient market requires that prices accurately reflect all available information.
Investors should be able to react to new information immediately, ensuring no arbitrage opportunities.

Role of the Financial Market

Financial markets facilitate the allocation of resources by matching buyers and sellers.
They provide a platform for raising capital, trading securities, and managing risks.
Efficient financial markets contribute to economic growth by enabling effective capital distribution.

Allocationally Efficient Market

In an allocationally efficient market, resources are allocated in a manner that maximizes overall economic welfare.
Prices in such markets reflect the true value of goods and services, leading to optimal distribution of resources.

Determinants of Market Price of Securities

The market price of securities is primarily determined by supply and demand dynamics.
Influential factors include investor perceptions, economic indicators, and company performance metrics.
Information asymmetry can also impact pricing, with insiders potentially influencing market rates.

Internal and External Market Efficiency

For a market to be both internally and externally efficient, it must ensure that all available information is reflected in asset prices (external efficiency).
Internal efficiency necessitates that trading costs are minimized and market participants can execute transactions without delays or hindrances.

Description

Test your knowledge of market efficiency in FIN 2227-Financial Institutions and Markets with this quiz. Assess your understanding of weak form efficiency, semi-strong form efficiency, strong-form efficiency, and the efficiency of the Sri Lankan stock market.