Market Information consists of the market and by market participants. The pricing in the financial market is done by supply and demand. The market is efficient because new information quickly affects the price in the market.
The Market. When we speak about the market is efficiently we think of the market’s reaction speed and reaction velocity accuracy.
This means that the market at any given time can be efficient. Shortly after new information change the pricing. Thereafter, the market is efficient at this point with the given information.
Scientists have divided the information so they better can understand if the financial market is efficient or not.
One division is that the pricing can be derived from historical prices. The pricing is based solely on historical prices. This means that information quickly influence the pricing.
The second division is that the pricing can be inferred from historical prices and other publicly available information.
The third division is that the pricing can be inferred from historical prices, other publicly available information and insider information. In other words, all information affects the pricing.
The weak form of market efficient, Sections 1 and 2 are broadly accepted. The strong form of market efficient, point 3 is not accepted among scientists. It has been rejected because the insider information is difficult to ascertain.
Insider information is difficult to verify because it is forbidden to make use of insider information. Insider information is not publicly available information and therefore difficult to research.
It is also difficult to determine how insider information affects the pricing of the financial market.
Scientists believe, however, that insider information affects the pricing.
Insider information affects the pricing when those who have the insider information use the information in the financial market. They affect the market because the pricing is done by supply and demand.
Insider information also affects the pricing when those who have the insider information’s are being studying by other market participants. Then they guess what the insider information consists and use it in the financial market.
The individual market participant. More precise information individual market participants have will lower their cost. It could be losses and trading costs in connection with trading in the financial market.
Scientists have been studying how individual market participants handle information.
Information Overload. Market participants cannot handle all information. When market participants have achieved a certain amount of information they will begin to make inferior decisions. The reason could be that human beings memory capacity is limited.
Information Overload can probably be influenced by using computers and interaction with other market participants.
Anchoring. Market participants tend to choose specific information and make adjustments by using available information.
The problem is they do not include all the information to their decisions.
An example – a market participant chooses to invest in a stock based on the company prior period earnings – this is the specific information – and then adds some specific information available regarding to the company’s economics – this is the adjustment.
The effect that a market participant does not include all information is that his predictions will probably be too low compared to the real value. This will be the case where new information will be an upward adjustment.
Inverse – his predictions become too high relative to the real value where new information will be a downward adjustment.
Functional fixation. Market participants overstate some values and they change slowly their conviction.
An example – a company changes their accounting principles. The principles they change is their depreciation methods.
Changing the accounting principles in this example yields an improved annual result – an overstated value – but only because of the changing accounting principles.
Social Trading – a social trader network. As a market participant in the financial market there is a lot of information to keep track of. It can be hard work.