Liquidity In Financial Markets

However, since conditions for a perfect market do not exist in a real capital market, security prices may not fully reflect all relevant information. Fama therefore pointed out the need to define the requirement for a stock price to fully reflect information in EMH in terms of expected return from holdings a security. He also pointed to the need to define relevant information in the EMH, and in defining it, he divided the market into three levels: the weak form, the semi strong form and the strong form. The EMH has three sub-hypotheses: the weak form, semi strong and strong form efficient market hypotheses. Each deals with a different level of cumulative information.

The reason why we're investing in the stock market volatility is for the reason that we identify the huge potential returns. But we are in the time of liberally traded markets and that is focusing the desire of the sentiment investors. When cash is concerned, feelings might sometimes be great. We have turn out to be stock market investors, because we realized that not just is there no simple cash, and also that the stock market volatility would do it is extreme to free us of our money. We are much uncomfortable with the approach of the buy-and-hold investment, and realize that if the purchase-and-hold might be very well if you are willing to remain twenty to thirty years, it frequently leads to loss from shorter durations.

For the economy as a whole, demand pulled inflation refers to the price increases which results from an excess of demand over supply. It is a form of inflation and categorized by the four parts (households, businesses, governments and foreign buyers). When these parts want to purchase greater output than the economy can produce and we need more cash to buy the same amount of goods as before and the value of money falls, so they have to compete in order to purchase limited amounts of products and services. Generally, the demand-pulled inflation result from any factor that increases aggregate demand. Also, an increase in export and two factors controlled by the government are increases in the quantity of money and increases in government purchases

In addition, the regression results are built on the basic dividend theories. With the recent complicated economic financial environments, there may be some abnormal relationships comparing with the theories. We cannot examine them in the project. 3.

By borrowing so much money, the government “crowds out” private individuals and private commercial interests. Now, the way these shortages get rationed, is for the prices to be pushed up, which is represented by a shift from i0 to i1 (also meaning interest rates are pushed up) Graph 2: The “Crowding Out” Effect Once interest rates are pushed up, it brings unintended and opposite effects on the AD. Consumer spendings will go down, businesses won’t be able to afford money to buy new capitals, leading to decreases in investment spendings and consumer spendings. These are parts of AD, therefore the AD is shifted partway back as shown in graph 3 below. In this case, overall unfortunately, the intended expansionary fiscal policy is diminished.