Dayton has asked you for advice about his investment portfolio. He is considering buying shares in companies listed on the Alternative Investment Market. Green, a friend of Dayton, has told him he should invest only in shares that are listed on an efficient capital market as otherwise he cannot be sure he is paying a fair price. Dayton has said to you that he is not sure what an 'efficient' capital market is.
(a) Explain to Dayton what characteristics are usually required to be present for a market to be described as efficient.
(b) Discuss whether the Alternative Investment Market is considered to be an efficient market.
(c) Discuss the extent to which research has shown capital markets to be efficient.