ASSIGMENT

PAPER STOCK MARKETS, RATIONAL EXPECTATION

THEORY AND EFFICIENT MARKET HYPOTHESES

BY:

MINDA

(B1B1 19 148)

MANAGEMENT MAJOR

FACULTY OF ECONOMICS AND BUSINESS

HALUOLEO UNIVERSITY

KENDARI

2020

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 FOREWORD

Peace be upon you, and Allah's mercy and blessings

Praise be to Allah SWT for giving us convenience so that we can complete this paper on time.
Without His help, of course, we would not be able to finish this paper well. Prayers and
greetings may be abundantly bestowed upon our beloved king, the Prophet Muhammad, whom
we will later turn to his shari'a in the hereafter.

The author gives thanks to Allah SWT for the abundance of His healthy favors, both in the form
of physical and mindfulness, so that the author is able to complete the making of papers as an
assignment of the Bank and other Financial Institutions with the title Capital Market, Rational
Expectation Theory and Market Hypotheses Efficient.

The author certainly realizes that this paper is far from perfect and there are still many mistakes
and flaws in it. For this reason, the author expects criticism and suggestions from readers for
this paper, so that this paper can later become a better paper. Thus, and if there are many errors
in this paper the authors apologize profusely ..

Thus, hopefully this paper can be useful. thanks.

Kendari, 13 April 2020

Author

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 TABLE OF CONTENTS

FOREWORD................................................................................................................ 2

TABLE OF CONTENTS............................................................................................. 3

CHAPTER I INTRODUCTION.................................................................................. 4

A. Background................................................................................................... 4
B. Formulation of the problem.......................................................................... 5
C. Aim................................................................................................................ 5
D. The benefits................................................................................................... 5

CHAPTER II DISCUSSION........................................................................................ 6

A. Stock market.................................................................................................. 6
B. Rational Expectation Theory......................................................................... 7
C. The Efficient Market Hypothesis; Rational Expectations in Financial Market 12

CHAPTER III CLOSING............................................................................................. 19

A. Conclusion..................................................................................................... 19
B. Suggestion .................................................................................................... 20

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 CHAPTER I

PRELIMINARY

A. Background
The stock market means the market for trading publicly held company shares
and related financial instruments (including stock options, trading and stock index
forecasts). We also know the stock market as the capital market. It is called the capital
market because it is an aspect of capital in a company.
Capital market efficiency has an important role in the investment management
process. If there are some imperfections in the capital market, wise investors will try
to use them to get higher returns. This perception has no significant rationality in the
real world where securities are priced efficiently. In an efficient market, the price of
securities should adjust to changing prices according to new information available.
Market efficiency cannot be fully tested, but by assuming some stock price behavior,
one can describe the state of an efficient market. History shows that a lot of time and
energy has been spent doing studies in order to explain the price movements of
securities, especially stocks.
Rarely does a day go by that the stock market isn't a major news item. We have
witnessed huge swings in the stock market in recent years. The 1990s were an
extraordinary decade for stocks: the Dow Jones and S&P 500 indexes increased more
than 400%, while the NASDAQ tech-laden index rose more than 1,000%. By early
2000, both indexes had reached record highs. Unfortunately, the good times did not
last, and many investors lost their shirts. Starting in early 2000, the stock market
began to decline: the NASDAQ crashed, falling by over 50%, while the Dow Jones
and S&P 500 indexes fell by 30% through January 2003.
Because so many people invest in the stock market and the price of stocks The
ability of people to retire comfortably, the market for stocks is undoubtedly the
financial market that receives the most attention and scrutiny. we look at how this
important market works.
We begin by discussing the fundamental theories that underlie the valuation of
stocks. These theories are critical to understanding the forces that cause the value of
stocks to rise and fall minute by minute and day by day. Once we have learned the
methods for stock valuation, we need to explore how expectations about the market
affect its behavior. We do so by examining the theory of rational expectations. When

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 this theory is applied to financial markets, the outcome is the efficient market
hypothesis. The theory of rational expectations is also central to debates about the
conduct of monetary policy.
Theoretically, the theory of rational expectations should be a powerful tool for
analyzing behavior. But to establish that it is in reality a useful tool, we must compare
the outcomes predicted by the theory with empirical evidence. Although the evidence
is mixed and controversial, it shows that for many purposes, the theory of rational
expectations is a good starting point for analyzing expectations.

B. Formulation of the problem

1. What is the stock market?
2. How does the market determine the safe price?
3. What is rational expectations theory and how can this theory affect market
behavior?
4. What is the efficient market hypothesis?
5. What is the evidence about the efficient market hypothesis?
6. What is the relationship between rational expectations theory and the efficient
market hypothesis?

C. Aim
1. Know the meaning of the stock market.
2. Know the notions of the theory of rational expectations and their effects on market
behavior.
3. Know about efficient market hypotheses and evidence about them.
4. Know the relationship between rational expectations theory and efficient market
hypotheses.

D. The benefits
Can be used as a reference to increase knowledge about the stock market,
rational expectations theory and efficient market hypotheses.

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 CHAPTER II

DISCUSSION

A. Stock market
The stock market is where publicly owned company shares can be bought and sold,
both OTC (outside the stock exchange) or through a centralized exchange. This equity
market, which is also another name, has established itself as a free market economy,
thereby offering companies the ability to access capital in return for offering a portion
of the company's ownership to interested outside parties.

Stocks are a proof of ownership of a company's value. By issuing shares, it allows

companies that need long-term funding to 'sell' interests in business - stocks (equity
securities) - in exchange for cash. This is the main method for increasing business
capital besides issuing bonds. Shares are sold through the primary market or the
secondary market. The shares consist of two, namely ordinary shares and preferred
shares.
1. Common stock
Common stock is the company's main way to increase capital. Ordinary
shareholders have an interest in the company that is consistent with the
percentage of outstanding shares held. This ownership interest gives
shareholders - who hold shares in the corporation - a bundle of rights. The
most important thing is the right to choose and claim the residual of all funds
flowing into the company (known as cash flow), which means that the
shareholders receive whatever is left after all the other claims to the company's
assets have been fulfilled. Shareholders are paid dividends from the company's
net profit. Dividends are payments that are made regularly, usually quarterly,
to shareholders. The company's board of directors determines the level of
dividends, usually on the recommendation of management. Other than that,
shareholders have the right to sell shares. Here are some research methods on
stocks.
a. The one-period valuation model
You buy shares, hold a period to get dividends, then sell shares. We
call this the one-period valuation model.

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 b. The Generalized Dividend Valuation Model.
The value of stock today is the present value of all future cash flows.

The price of the

stock is determined only
by the present value of
the future dividend
stream.
c. TheGor don Growth
Model

Dividends are assumed to continue growing at a constant rate forever The

growth rate is assumed to be less than the required return on equity.

How The Market Sets Price

1. The price is set by the buyer willing to pay the highest price
2. The market price will be set by the buyer who can take the best advantage of the
assets
3. Superior information about an asset can increase its value by reducing its risk

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B. Rational Expectation Theory.
The stock price evaluation analysis we have described in the previous section depends
on the expectations of the community - especially cash flow. It is hard to think of any
sector in an economy where expectations are not important; this is why it is important
to examine how expectations are formed. We do this by outlining the theory of
rational expectations, currently the most widely used theory to describe the formation
of business and consumer expectations.

In the 1950s and 1960s, economists regularly saw expectations as being formed only
from past experience. Inflation expectations, for example, are usually seen as an
average rate of past inflation. This view of forming expectations, called adaptive
expectations, shows that changes in expectations will occur slowly over time as
changes in recent data. So if inflation was previously stable at the 5% level, inflation
expectations in the future will be 5% as well. If inflation rises to a stable level of 10%,
future inflation expectations will rise towards 10%, but slowly: In the first year,
expected inflation may rise to only 6%; in the second year, to 7%; etc.

Adaptive expectations have been blamed on the grounds that people use more
information than just past data on one variable to form their expectations about that
variable. Their inflation expectations will almost certainly be influenced by their
predictions. Expectations of future monetary policy as well as by current and past
monetary policies. In addition, people often change their expectations quickly in the
light of new information. To meet these objections to adaptive expectations, John
Muth developed an alternative theory of expectations, called rational expectations,
which can be stated as follows: Expectations will be identical to optimal estimates
(best estimates of the future) using all available information. To explain it more
clearly, let's use the theory of rational expectations to examine how expectations form
in the situations that we meet most at some point in our lives: our drive to work. For
example when Joe Commuter travels when it's not rush hour, it takes an average of 30
minutes tohis journey. Sometimes it takes 35 minutes, other times 25 minutes, but the
average non-rush hour driving time is 30 minutes. However, if Joe goes to work
during peak hours, it takes an average of 10 additional minutes to work. Given that he
left for work during rush hour, the best guess for driving time - that's the optimal
estimate - is 40 minutes.

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If the only information available to Joe before he went to work, it might have a
potential effect on driving time was that he would go during rush hour, what does
rational expectation theory allow you to predict Joe's expectations about his expected
driving time? Because the best guess of driving time uses all the information available
in 40 minutes, Joe's expectations must be the same. Clearly, the expectation of the 35
minutes will not be rational, because it is not the same as the optimal estimate, the best
guess is driving time. For example the next day, with the same conditions and
expectations, Joe takes 45 minutes to drive because he hits a large number of red lights
that are not normal lights, and the day after that he hits all the lights correctly and only
takes 35 minutes. Do these variations mean that Joe's 40-minute expectation makes no
sense? No, a 40-minute driving time expectation is still a rational hope. In both cases,
the forecast is turned off for 5 minutes, so the expectations are not completely
accurate. However, the forecast does not have to be completely accurate to be rational
- it needs to be only as available as possible as available information; that is, it must be
true on average, and expect 40 minutes to meet this requirement. Because there is
bound to be randomness in Joe's driving time regardless of driving conditions, a
forecast choice will never be completely accurate. so the expectations are not entirely
accurate. However, the forecast does not have to be completely accurate to be rational
- it needs to be only as available as possible as available information; that is, it must be
true on average, and expect 40 minutes to meet this requirement. Because there is
bound to be randomness in Joe's driving time regardless of driving conditions, a
forecast choice will never be completely accurate. so the expectations are not entirely
accurate. However, the forecast does not have to be completely accurate to be rational
- it needs to be only as available as possible as available information; that is, it must be
true on average, and expect 40 minutes to meet this requirement. Because there is
bound to be randomness in Joe's driving time regardless of driving conditions, a
forecast choice will never be completely accurate.

This example makes the following important points about rational expectations:
Although rational expectations are the same as optimal estimates using all available
information, predictions based on that may not always be accurate. What if an
information item that is relevant to the predicted driving time is not available or
ignored? For example, on Joe's usual route to work there was an accident that caused a

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two hour traffic jam. If Joe does not have a way to confirm this information, the rush
of the expected 40-minute driving time is still rational, because the accident
information is not available for him to put into his optimal estimate. However, if there
is a radio or TV traffic report about the accident, Joe does not bother listening or
listening but is ignored, the 40-minute hope is no longer rational. Given the
availability of this information, Joe's optimal estimate should have been two hours and
40 minutes. Therefore, there are two reasons why expectations might fail to be
rational:

1. People may know all the information available but it turns out that it takes too much
effort to make their best guess of expectations.
2. People may not be aware of some relevant information available, so the best guess
at the future will not be accurate. However, it is important to recognize that if
additional factors are important, but information about them is not available,
expectations that do not take them into account can still be rational.

We can state the theory of rational expectations more formally. If X stands for the
variable being predicted (in our example, Joe Commuter's driving time), X e is for this
variable's expectation (Joe's expectation is driving time), and X is from.
for optimal estimates of X using all available information (best guess of driving time),
the theory of rational expectations then simply says:
Xe = Xof
That is, expectation X equals optimal estimates using all available information.

why do people try to make their expectations according to their best guess in the future
using all available information? The simplest explanation is that it's expensive so
people don't do it. Joe Commuter has a strong incentive to realize his expectations.
The time needed to drive to work as accurately as possible. If he predicts driving time,
he will often be late for work and risk being fired. If he overpredicts, he will, on
average, start working too early and will give up sleep or unnecessary leisure.
Accurate expectations are desired, and there is a strong incentive for people to try to
make it the same as optimal estimates using all available information.
The same principle applies to business. Suppose a turer-making tool - say, General
Electric - knows that interest rate movements are important for that sale of equipment.

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If GE makes bad interest rate forecasts, it will produce less profit, because it might
produce too much equipment or too little. There is a strong incentive for GE to obtain
all available information to help it estimate to assess and use that information to make
the best estimate of future interest-level movements.

The incentive to match expectations with optimal forecasts is especially strong in

financial markets. In these markets, people with better future predictions get rich. The
application of the theory of rational expectations to financial markets (which is called
the efficient market hypothesis or the theory of efficient capital markets) is thus very
useful.

Rational expectations theory leads to two plausible implications for the formation of
expectations that are important in aggregate economic analysis:
1. If there is a change in the way the variable moves, the way in which the
expectations of this variable are formed will change too. This principle of
rational expectations can be most easily understood through concrete
examples. Suppose interest rates move such that they tend to return to
"normal" levels in the future. If the current interest rate is relatively high to the
normal level, the optimal estimate of the future interest rate is that it will go
down to the normal level. Rational expectation theory would imply that when
the current interest rate is high, this expectation will fall in the future. For
example now how the movement of interest rates change so when the interest
rates are high, remain high. In this case, when the current interest rate is high,
the optimal estimate of the future interest rate, and hence rational expectations,
is that it will remain high. Expectations of future interest rates will no longer
indicate that interest rates will fall. Changes in the way variable interest rates
move. Therefore it has caused a change in the way expectations of interest
rates in the future are formed. Analysis of rational expectations here can be
generalized to any variable's expectations. Therefore when there is a change in
the way the variable moves, the expected entrance of this variable will change
as well.
2. The estimated error of the average expectation will be zero and cannot be
predicted beforehand. Estimated error estimates are XXe, the difference
between the realization of the variable X and the expectation of the variable;

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 that's if Joe Commuter's driving time on a certain day is 45 minutes and his
expectation of driving time is 40 minutes, the estimated error is 5 minutes.
Suppose it violates the principle of rational expectations, Joe's prediction error
is that the average is not equal to zero; instead, it's the same as 5 minutes.
Estimation errors can now be predicted in advance because Joe will soon
realize that he is, on average, 5 minutes late for work and can improve his
forecast by increasing it in 5 minutes. Rational expectations theory implies that
this is what Joe will do because he wants his predictions to be the best guess.
When Joe has revised his estimate to over 5 minutes, on average, the forecast
error will be zero so that it cannot be dictated beforehand. Rational expectation
theory implies that the error of expectation estimates cannot be predicted.

C. The Efficient Market Hypothesis: Rational Expectations in Financial Markets.

While the theory of rational expectations was developed by monetary economists,
financial economists were developing a parallel theory of expectation formation in
financial markets. It led them to the same conclusion as that of the rational
expectations theorists: Expectations in financial markets are equal to optimal forecasts
using all available information.4 Although financial economists give their theory
another name, calling it the efficient market hypothesis, in fact their theory is just an
application of rational expectations to the pricing of securities. The efficient market
hypothesis is based on the assumption that prices of securities in financial markets
fully reflect all available information.

R = Pt + 1 - P.t + C
P.t

R = The rate of return on the security

P.t +1 = Price of the security at time t + 1, the end of the holding period
P.t = Price of the security at time t, the beginning of the holding period
C = Cash payment (coupon or dividend) made during the holding period.

At the beginning of the holding period, we know Pt and C. Pt + 1 is unknown and we

must form an expectation of it. The expected return then is

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Expectations of future prices are equal to optimal forecasts using all currently
available information so

Supply and demand analysis states Re will equal the equilibrium return R * so

Efficient Markets,
 Current prices in a financial market will be set so that the optimal forecast of a
security's return using all available information equals the security's
equilibrium return.
 In an efficient market, a security's price fully reflects all available information.

Rationale:

In an efficient market, all unexplored profit opportunities will be eliminated.

Many financial economists take the efficient market hypothesis one step further
in their hypotheses of financial market analysis. Not only do they define efficient
markets like those in Indonesia which are rational expectations - that is, the same
as optimal estimates using all available information - but they also add a
condition that efficient markets are markets where prices reflect the true
(intrinsic) fundamental value of securities. So in a cient market, all prices are
always right and reflect market fundamentals (those items have a direct impact
on future income streams from securities). This view of stronger market
efficiency has several important implications in the academic field of finance.
First, this implies that in an efficient capital market, an investment is as good as
any other investment because the price of the security is correct. Second, this
implies that the price of a security reflects all available information about the
intrinsic value of security. Third, it implies that security prices can be used by

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financial and non-financial managers. it is important for companies to assess the
cost of their capital (the cost of financing their investment) accurately and
therefore the price of security can be used to help them make the right decision
about whether a particular investment is worth it or not. A stronger version of
market efficiency is the basic principle of many analyzes in finance. this implies
that the price of a security reflects all available information about the intrinsic
value of security. Third, it implies that security prices can be used by financial
and non-financial managers. it is important for companies to assess the cost of
their capital (the cost of financing their investment) accurately and therefore the
price of security can be used to help them make the right decision about whether
a particular investment is worth it or not. A stronger version of market efficiency
is the basic principle of many analyzes in finance. this implies that the price of a
security reflects all available information about the intrinsic value of security.
Third, it implies that security prices can be used by financial and non-financial
managers. it is important for companies to assess the cost of their capital (the
cost of financing their investment) accurately and therefore the price of security
can be used to help them make the right decision about whether a particular
investment is worth it or not. A stronger version of market efficiency is the basic
principle of many analyzes in finance. it is important for companies to assess the
cost of their capital (the cost of financing their investment) accurately and
therefore the price of security can be used to help them make the right decision
about whether a particular investment is worth it or not. A stronger version of
market efficiency is the basic principle of many analyzes in finance. it is
important for companies to assess the cost of their capital (the cost of financing
their investment) accurately and therefore the price of security can be used to
help them make the right decision about whether a particular investment is worth
it or not. A stronger version of market efficiency is the basic principle of many
analyzes in finance.
 Evidence on the Efficient Market Hypothesis
Preliminary evidence about an efficient market hypothesis is quite
advantageous for that, but in recent years, deeper analysis of the evidence
shows that the hypothesis may not always be entirely correct. Let's first
look at previous evidence supporting the essay hypothesis and then

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examine some of the more recent evidence that doubts it. Evidence
supporting market efficiency has examined the investment performance
of analysts and mutual funds, whether stock prices reflect publicly
available information, random walk behavior of stock prices, and success
called cal analysis.
Evidence Against Market Efficiency:
a. Performance of Investment Analysts and Mutual Funds
We have seen that one implication of an efficient market
hypothesis is that when buying securities, you cannot expect to
get an abnormally high return, the return is greater than the return
balance. This implies that it is impossible to beat the market.
Much research explains whether investment advisors and mutual
funds (some of which impose steep sales commissions on people
who buy them) outperform the market. One common test that has
been carried out is to take buy and sell recommendations from a
group of advisers or mutual funds and compare the performance
of the stock selection results with the overall market.

The efficient market hypothesis estimates that the stock price will
reflect all publicly available information. So if the information is
publicly available, positive announcements about the company
will not, on average, raise its share price because this information
is already reflected in the stock price. Preliminary empirical
evidence also confirms this assumption from the efficient market
hypothesis: the announcement of profitable profits or the
announcement of stock splits (the division of shares into shares,
which is usually followed by lower earnings), not average,
causing stock prices to rise.

b. Random-Walk Behavior of Stock Prices

The term random walk describes the movements of several
variables whose future changes are unpredictable (random)
because, given the value of today, those variables tend to fall the
same as rising. An important implication of the efficient market

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 hypothesis is that stock prices must roughly follow a low random
path; that is, future changes in share prices must, for all practical
purposes, be unpredictable. The random implications of an
efficient market hypothesis are the most commonly mentioned in
the press, because that is the most easily understood by the
public. In fact, when people mention "walking stock price
theory," they are in fact referring to an efficient market
hypothesis.
c. Technical Analysis
A popular technique used to predict stock prices, called technical
analysis, is to study past stock price data and look for patterns
such as trends and regular cycles. The rules when to buy and sell
shares are then set on the basis of the patterns that emerge. The
efficient market hypothesis shows that technical analysis is a
waste of time. The simplest way to understand why is to use road
results derived from efficient market hypotheses that hold past
stock that price data cannot help predict changes. Therefore,
technical analysis, which relies on such data to produce estimates,
cannot successfully predict changes in stock prices.

d. Small-Firm Effect
One of the earliest anomalies reported where the stock market did
seem to be inefficient is called the effects of small companies.
Many empirical studies have shown that small companies have
gotten abnormally high returns over long periods of time, even
when greater risks for these companies have been calculated.
Small companies' effects appear to have diminished in recent
years, but they are still a challenge to the efficient market
hypothesis. Various theories have been developed to explain
small company securities, suggesting that it may be due to
portfolio rebalance by institutional investors, tax problems, small
company stock liquidity, large information costs in using small
companies,
e. January Effect

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 Some financial economists argue that the January effect will be
due to tax problems. Investors have an incentive to sell shares
before the end of the year in December, because they can then
take capital losses on tax returns and reduce their tax obligations.
Then when the new year starts in January, they can buy back
shares, raise their prices and produce abnormally high returns.
Although this explanation makes sense, it does not explain why
institutional investors such as Vate pension funds, who are not
subject to income tax, do not take advantage of abnormal returns
in January and buy shares in December, thereby bidding their
prices and eliminating January's abnormal returns and buying
shares in December,
f. Market Overreaction.
Recent research shows that stock prices may overreact to news
announcements and that price fixing mistakes are only corrected
slowly. When the corporation announces a big change in income
- say, a big decline - stock prices might surpass, and after the
initial large decline, it might rise back to more mall levels for
several weeks. This violates the efficient market hypothesis,
because an investor can obtain an abnormally high return, on
average, by buying a stock immediately after a bad earnings
announcement and then selling it after a few weeks when it has
risen back to normal levels.

g. Excessive Volatility
A phenomenon closely related to excessive market reaction is
that the stock market seems to show excessive volatility; that is,
fluctuations in share prices may be far greater than those
guaranteed by fluctuations in their fundamental value. In an
important paper, Robert Shiller from Yale University found that
fluctuations in the S&P 500 stock index cannot be justified by
subsequent fluctuations in div- idends of the stocks that make up
this index. There are many working techniques that criticize this
result, but Shiller's work, along with research found that there are

17
 smaller fluctuations in stock prices when the stock market closes,
has reduced consensus that stock market prices appear to be
driven by factors other than fundamentals.
h. Mean Reversion
Some researchers also find that a stock return display means
reversion: Stocks with low returns today tend to have high returns
in the future, and vice versa. Therefore stocks that performed
poorly in the past are more likely to succeed in the future,
because returns mean that there will be positive predictable
changes in future prices, indicating that stock prices are not a
random path.

i. New Information Is Not Always Immediately Incorporated into Stock

Prices.
Although it is generally found that stock prices adjust quickly to
new information, as suggested by the efficient market hypothesis,
recent evidence shows that, inconsistent with an efficient market
hypothesis, stock prices do not automatically adjust to earnings
announcements. Conversely, the average share price continues to
rise for some time after the announcement of an unexpectedly
high profit, and they continue to fall after the very low earnings
announcement.

An efficient market hypothesis leads to the conclusion that an investor

(and almost all of us fall into this category) must not try to guess the
market by continuing to buy and sell securities. This process does
nothing but increase brokerage income, which gets a commission on
every trade. Instead, investors must pursue a "buy and hold" strategy -
buy stocks and hold for a long time. This will lead to the same, average
return, but the investor's net profit will be higher, because less broker
commission must be paid.

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 CHAPTER III
CLOSING
A. Conclusion
The stock market is where publicly owned company shares can be bought and sold.
Stocks are a proof of ownership of a company's value. Common stock is the
company's main way to increase capital. Ordinary shareholders have an interest in the
company that is consistent with the percentage of outstanding shares held. There are
several research methods on stocks, namely, the one-period valuation model, the
Generalized Dividend Valuation Model, and the Gordon Growth Model. Rational
expectations can be stated as follows: Expectations will be identical to optimal
estimates (best estimates from the future) using all available information. The
application of the theory of rational expectations to financial markets (which is called
the efficient market hypothesis or the theory of efficient capital markets) is thus very
useful. Rational expectation theory implies that the error of expectation estimates
cannot be predicted. The efficient market hypothesis states that currently the price of
security will fully reflect all available information, because in an efficient market, all
profits not exploited opportunities are eliminated. Elimination of untapped
exploitation opportunities needed for financial markets to be efficient does not require
that all market participants are well informed. Evidence about the efficient market
hypothesis is quite mixed. Preliminary evidence about the performance of PT
investment analysts and mutual funds, both stock prices reflect publicly available
information, random share price behavior, and the success of so-called technical
analysis is quite favorable for the efficient market hypothesis. However, in recent
years, evidence about small company effects, January effects, excessive market
reactions, excessive volatility, mean returns, and new information are not always
included in stock prices, suggesting that hypotheses may not always be entirely
correct. The evidence seems to indicate that a hypothetical efficient market may be a
reasonable starting point for evaluating behavior in financial markets but may not be
generalized to all behaviors in financial markets. An efficient market hypothesis
shows that hot tips, published investment advisory recommendations, and technical
analysis cannot help investors outperform market performance. The recipe for
investors is to pursue a buy and hold strategy - buy stocks and hold for a long time.
Empirical evidence generally supports the implications of an efficient market
hypothesis on the stock market.

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B. Suggestion
This paper is certainly far from perfection. Therefore, we sincerely hope that the input
and suggestions from the readers will be achieved in order to achieve this perfection.

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