The efficient market Hypothesis (EMH) continues to provide a convincing explanation of how asset prices should respond to different types of information, but it does not provide a very a good account of the pricing of a firm’s debt and equity. Hence,
This assignment relates to the lecture on the efficiency of financial markets. To answer it satisfactorily, give some thought to the question and to define and explain the EMH (distinguishing between the three levels of the hypothesis). This should take about half of your essay. The main body of your answer should focus on why or why not the EMH does not provide an adequate explanation of asset pricing with respect to a firms debt and equity. The latter part of the question requires more thought, and you should try to highlight features of the EMH which lends itself to the context of corporate managers. In the development of your answer you are expected to include relevant economic and financial concepts and where appropriate to make use of relevant diagrams.