Market Efficiency

Market efficiency is the degree to which prices in a specific market reflect different, relevant, and available information. The primary goal of placing money in any stock market is to generate a specific return in consideration of the invested capital. The basic principle and the efficient market are one where there is no opportunity for one to make money, particularly without taking or considering specific risks. On the other hand, the entire premise of value investing is focused mainly on finding that dollar that is sold at cheaper prices. Based on this case, the $20 bill taken by the student is not real because the effect market does not have such opportunities. To get a real bill, the student would have been required to take a risk of investments which is the only opportunity presented in an efficient market.   

In most cases, many investors try not only to make a profitable return but also and most importantly to ensure they outperform and beat the market involves. However, market efficiency suggests that at any specific time, prices play a critical role in reflecting all readily available information related to an involved stock or marker. Technically, investors have no advantage particularly in predicting a return with regard to a specific stock price (Rossi & Gunardi, 2018). The main reason, in this case, is that no investors or any other person have access to information that is currently unavailable for everyone else.    

Logically, the nature of this information does not necessarily have to be limited to specific research or financial news alone. As prices tend to respond to available information in a given market and because different participants in a market are privy to such information, it is evident that no person will be able to successfully out-profit other. In an efficient market, prices tend to be random but not predictable. This case means it will be difficult for investment patterns to be discerned. Besides, any planned approach to investment remains impossible.

References

Rossi, M., & Gunardi, A. (2018). Efficient market hypothesis and stock market anomalies: Empirical evidence in four European countries. Journal of Applied Business Research (JABR), 34(1), 183-192.