QUESTION TWO (23 MARKS)

The efficient market hypothesis (EMH) is an investment theory that states that it is impossible to always make profit from the securities market. The market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, shares always trade at their fair value on securities exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert shares selection or market timing, and the only way an investor can possibly obtain higher returns is by purchasing riskier investments.

Required

1. Explain the random walk theory
2. Explain the differences between technical analysis and fundamental analysis
3. Explain the different form of market efficiency
4. Explain the factors that causes the market shocks