A market is efficient when the stock prices are dependent on all market available information on a given market or stock. When investors either institutional or individual investors invest money into the stock market, the major objective is to more returns on the investment put. The investors don’t just only focus on the profitability performance but also perform much better than the market itself. No investor has an upper hand in predicting the returns on the investment on the stock because it’s not possible to access the information that is not available on the market (Besley and Brigham 724).
Market efficiency has effects on non-predictability, information on returns on investment in the stock market does not only rely on the financial news and market research only, but it also incorporates the information on economic, political, social events. How the investors perceive, information will reflect on the stock exchange prices. In an efficient market the stock prices are unpredictable, but random, for this reason, any investment pattern must be given consideration. Therefore, an investment approach planned is likely to fail. The failure of many business strategies whose aim has been to beat the market witnessed because of the random trend in prices of the market stocks. In the real investment world, there are counter arguments on the Efficient Market Hypothesis. As watched the PBS video there those investors whose stock had to stay calm because there wasn’t fundamental information about the company in the market, but because of implementing irrational market strategies have beaten the market this is evidently seen in the publicly traded South Korea semiconductor firm, Di-Corp Company. When the gangster dance moves video went super viral associated with the company, it attracted a lot of sales to the company subsequently the company making a lot of profit translated into the stock prices. After some time, the prices went back to normal, but rose again because once more the son released another single hit, according to the son, when people anticipate another hit song prices shoot up. The Efficient Market Hypothesis accommodates the fact that a company can realize supernormal profits because of the possibilities of the market anomalies as witnessed in the Di-Corp Corporation. The market efficiency states that not all the time the prices are going to be same at fair value. Because the deviations of prices from the fair value are random, those market strategies that aim at beating the market are never consistent phenomena. The investor who beats the market does not have unique skills as compared to other investors but out of luck. It wasn’t certain that the songs by the son to the founder of Di-Corp were going to be a hit to many parts of the country, abroad and in many institutions as watched the video. So such an achievement is attributed to the laws of probability. At any period and time a big market with many investors, there those who will underperform and those who will outperform.
In the PBS video, three irrational factors have been given focus and on how they can boost the company’s stock prices. The factors include viral music videos, television interviews, and good looks. Stock prices improve the day of the interview by the company CEO of the business involved; noted that the share prices got back to normal once the interviews come to an end and that one is now rational. Because for the market to be more efficient the cost and the accessibility of the information about the company must be readily and widely available to the market for the investors almost at the same time. The information given by the CEO that given company must clearly demonstrate that the transaction cost low as compared to the profits expected from the investment. The investors should be ready to take the advantage of the inefficiency unless it disappears once more. Therefore the higher the rate at which the information is received by the investors the quicker the transactions this is because stock prices always reflect the actual value of the company because investors take all available information about the enterprise.
Another irrational factor that affects stock prices as witnessed in the PBS video is the looks of the company’s Chief Executive Officer. Such a personality being the company’s highest ranking who has the most vital responsibilities of the enterprise, will always be the center of the focus by the investors. Apart from the major decisions that he makes, management of the resources of the company and vital communications to the investors, it will be an added advantage if he/she got good looks. CEO who got better looks will boost big the stock prices in the market this is because that strength will generate more confidence to the workers, subordinate and as a result making more sales and big profits making the stock prices to shoot. It’s though irrational to consider beauty, but in the context of the discriminating society that underlines looks like a factor. As seen in the video MUSK one of the good looking CEO, when he was opening Tesla Patents the stock prices for motors increased, CEOs that have beautiful face have a more advantage compared to those who have features that are not physically appealing, therefore, looks in itself is a financial investment in the company. The attractiveness perfects the people’s perception.
Works cited
Besley, Scott and Eugene F. Brigham. Principles Of Finance. 6th ed. New York: Cengage
Learning, 2014. Print.
