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The efficient market hypothesis and accounting information. It has been argued that by the time financial...

The efficient market hypothesis and accounting information. It has been argued that by the time financial statements are issued, the market price of shares already reflects the information contained in them; hence, accounting information is not relevant. The arguments should address all three forms of the EMH Present arguments that given the EMH, accounting information is irrelevant.

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Answer #1

Efficient market hypothesis is based on the information available in the market. The available information can be reflected in the share prices of the entity. When any information is released in the market it affects the share prices whether positively or negatively. Thus the financial information can affect the share prices. Financial statements are issued after the year end. The information is available in the market and thus it affects the market prices if the share. Therefore, by the time the financial statements are issued the information available in the market have already affected the market. But in the other case where the financial information is not released in the market the issuance of the financial statements have impact on the EMH. Therefore it cannot be said that the financial statements are not relevant.

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