Question

Please use two economic concepts. Thank u.

How might the behavior of someone who relies on fundamental analysis differ in the way they invest from someone who follows the efficient markets hypothesis?

Answer 1

Fundamental analysis is the oldest technique or method which an investor takes into min before investing. This analysis requires analysis of company's financial position (it includes analysis of cash flow statement, profit and loss statement, balance sheet, different accounting ratios etc.) Based on the analysis and using some skills, investor can derive an estimate for investment Efficient market hypothesis is based on 3-assumptions: perfect information, rationality in decision making and random walk pricing. If all the three assumptions hold true, then the estimation of investment is assumed to be correct. If the information provided is same, then every investor has same calculation. The only difference in choosing the way to invest between fundamental analysis and EMH is time period. The goal of investor must be clear. The investor using fundamental analysis are long-run investors because this analysis helps in estimating the price of the stock in the long-run. Similarly, the investor using EMH are short-run investors because investor reads the chart using this analysis and expect the movement in price in short-run.