Abstracto

Explaining Efficient Market Hypothesis (EMH) in value relevance studies for accounting strategies.

Mohammed Yusuf Alkali*, Umale Okoh, Aliyu Abubakar

Capital markets expedite the selling and buying of securities, like bonds or debentures and shares. The markets perform two significant functions such as liquidity and security pricing. The efficiency of financial markets or the Efficient Market Hypothesis (EMH) states that the prices of assets traded reflect all the available information accurately and reveal the shared beliefs of all users or investors about the predictive prospect of the market. Value relevance studies can be considered to be related to market efficiency. EMH is regarded as the most significant theory underpinning areas of accounting research . Fama first developed EMH using Efficient Market Theory. The idea of an efficient market is more interested in prices at any given point in time as “fully reflecting” available information. Fama argued that ownership allocation from the company’s capital stock, which represents the basic role of the capital market, is perfectly achieved as long as the market is efficient; this is because the market can provide accurate signals of prices from resource allocations.