Advertising and Marketing blog

The efficient market hypothesis (EMH) was promoted by Eugene Fama in the 1960. In his classic paper Fama (1970) defined market in which prices always fully reflect available information as “efficient”.While this definition reflects the main idea of the EMH it might be extended to explain the underlying assumption. For example Malkiel (1992) proposed the following definition:

A capital market is said to be efficient to if it fully and correctly reflects all relevant information in determining security prices. Therefore, more formally, the market is efficient with respect to some information set. ..if security prices would be unaffected by revealing that information to all participants. Moreover, efficiency implies that it is impossible to make economic profits by trading on the basis of the defined information set (Papers4you.com, 2006).

As it follows from the Malkiel (1992) definition if the market is efficient the company market value should be an unbiased estimate of the true value. Nevertheless it is important to stress that:

1. Market efficiency does not require that market price is equal to the true value

2. There is an equal probability that stocks over or under valued at any point in the time

3. And finally, investors should not be able to consistently identify under or over valued stocks using any investment strategy ( Damodaran, 2006).

What are the implications of the market efficiency from the individual investor perspective?
Firstly, equity research is costly and provides no benefits. Secondly strategies that have minimal execution costs such as randomly diversified portfolio or indexing to the market would be superior to any other investment strategy. Thirdly, a strategy that has minimum transaction costs should provide higher returns in the long run (Damodaran, 2006).

Nevertheless it is important to stress that markets are not efficient due to their nature, but they are driven to efficiency by the actions of the investors. Therefore Roberts(1967) distinguished among three forms of the market efficiency:

1. Weak form: the information set includes only historic data.

2. Semi strong: the information set includes publicly available information.

3. Strong form: the information set includes all information know to any market participant and includes private information.

Obviously in reality, investors have access to different information sets. While trading which is based on the insider information is prosecuted, analysis and interpretation of the publicly available information requires specific knowledge and skills (Papers4you.com, 2006). Therefore the efficient market should be seen as a self correcting mechanism, where inefficiencies appear at regular intervals but disappear almost instantaneously as investors find and trade on them.

EMH has wide applications in the financial markets, since it is easily extended to the valuation of companies , market failures such as an Enron Case, or performance analysis of the mutual funds. The traditional analysis of the market efficiency is based on the analysis of the anomalies such as Peso Effect in the foreign exchange market or devoted to the predictability of the stock returns.

References

Damodaran )nline (2006) “MARKET EFFICIENCY – DEFINITION AND TESTS”, Available from: http://pages.stern.nyu.edu/~ADAMODAR/New_Home_Page/invemgmt/effdefn.htm [17/06/2006]

Fama E. F., 1970, Efficient capitalmarkets: Areviewof theory and empiricalwork, Journal of Finance, 25, 383-417.

Malkiel B (1992) Efficient market hypothesis. In NewMan P.M. Milgate ,and J Eawells (eds). The new Palgrave dictionary of Money and Finance.

Papers For You (2006) “C/F/94. Validity of the Efficient Market Hypothesis”, Available from http://www.coursework4you.co.uk/sprtfina2.htm [17/06/2006]

Papers For You (2006) “E/F/38. Efficient market hypothesis: theory and implications”, Available from http://www.coursework4you.co.uk/sprtfina2.htm [18/06/2006]

Robersts, H. 1967. Statistical versus clinical predictions of the stock markets. Unpublished manuscript, Center for research in Security Prices, University of Chicago, May.

Copyright © 2006 Verena Veneeva. Professional Writer working for http://www.coursework4you.co.uk

Many of the marketing texts argue that marketing is a logical process with a natural structure which can be viewed primarily as a method of: understanding the marketing environment; using the marketing mix; developing a marketing plan based upon the use of the mix; implementing a plan through a strategy; and finally, using a control method to ensure the strategy is adhered to. This marketing process is reviewed and evaluated regularly and modifications made to the use of the mix to take account of market changes impacting upon competitiveness. This view of marketing seems to suggest that much of the marketing theory relate to multinational enterprises, which are internationally based and have global ambitions. The EU market constitutes a differentiated marketplace in terms of culture, competition, and organization strategies used to penetrate the target market. Although these differences have their implications interfere with a country’s business planning, EU is considered as an opportunity for companies worldwide to expand through internationalization strategies and compete with major players in terms of sales, profits, market shares and organizational momentum.

Another core issue in marketing is the growth and importance of theories in networking and interaction. This view looks at the way in which companies and organizations interact and consequently network with each other to gain commercial advantage in world markets. The network can be using similar subcontractors or components, sharing research and development costs or operating within the same governmental framework. Clearly, being within the EU, a trading block with no internal barriers creates its own networks. Collaborations in aerospace, vehicle manufactures and engineering have all sponsored the development of a European outlook based on its own internal market network. This network and interaction approach to marketing shows the substance of being able to influence decisions by knowledge of how the EU network works or interacts.

The EU is a rich, diverse market, with a vibrant and varied cultural heritage; this means that although there has been a harmonization process within the 15 states as a result of the formation of EU, there are still differences. Rather than business being simpler as a result of the union, it should be recognized that because of regulation and need to restructure in a global market it can be highly complex. It should be remembered that the Europeans have a high-income average and like to have their cultural differences recognized. Those firms that will or have recognized this have a good chance of developing a successful marketing strategy to meet their needs.

Furthermore the marketing operations of EU companies need to be adapted in order to respond to the multiple of changes which have taken place in Europe. However, it is not possible to identify clearly how companies should modify their marketing operations. Some companies face radical change to overall strategy as well as to marketing operations. Other companies are more likely to consider minor alterations to their existing strategies and marketing initiatives. The only “golden rule” as is so often the case is that there are no “golden rules.” EU companies need to assess their marketing response to the changes in the European environment, on the basis of careful studying the effects of these changes on their current and likely future activities.

Jonathon Hardcastle writes articles on many topics including Investing, Business, and Finance.

“How to Earn the Right…”

Marketing your professional services is a lot like dating: you have
to earn the right to be intimate.

In both endeavors, you can’t skip or rush through levels of intimacy
for the relationship to work. Whether it’s a new flame or a new
client, you have to build trust that leads to deeper levels of
commitment.

Think about it: people that you want for clients start out as
strangers. They don’t know about you and your firm. So you can’t
expect them to jump into a long-term relationship with you before
they move from stranger, to acquaintance, to friend, to lover, and
then to loyal partner.

I don’t need to spell out the analogy to dating in detail for you to
get the idea, but this point is key: don’t expect strangers to commit
to your professional services until you move them through the trust-
building phases of developing a relationship.

Think of marketing as a path to earning your clients’ commitment.
For definitions of each phase, read on. For ideas on how to move
through each phase, read the rest of this article.

Strangers. Strangers don’t know who you are and don’t see the
difference between you and others offering your same service. At
first glance, you might be another pretty face in the crowd, but
that’s about it. The key here is to catch and hold attention from the
right kinds of prospects.

Acquaintances. In the business world, Acquaintances shop based on
price and availability. They won’t pay for value and want the goods
fast. Off-the-shelf is fine, with no customization required. You get
little or no loyalty from Acquaintances. While not the way to grow a
professional service firm, there are ways to serve this market, as
well as move through this segment.

Friends. At this phase, you might be working closely with a client,
or you might still be earning their trust. In general, Friends tend
to have some kind of working agreement in place that includes
pricing, service and deliverables. Whether you’ve done one project or
a small amount of work for a Friend, there are still other fish in
the sea.

Lovers…are highly bonded business partners in explicitly
negotiated, contractually defined relationships of commitment and
trust. They enjoy all the benefits of a trust-based relationship
including regular, frequent and open communication, insider benefits,
discounts, and customized solutions.

Loyal Partners…have been working together for some time, usually
years. They easily refer business back and forth to each other and
truly believe that they are the best solution in the market for the
niche they serve. They’ve learned a lot from each other and each is
better for having known and worked with the other.

To move your prospects and clients from Strangers to Loyal Partners,
give these things a try:

To catch a Stranger’s eye: You’ve got to turn heads. This means
knowing whom you want to attract, and then communicating the right
things to get and hold their attention. In other words, you’ve got to
position yourself well against the competition, and speak (or write)
in terms of your target audience’s WIIFM (What’s In It For Me?).

Get the first 10 words dead right, or it won’t matter how brilliant
your next 100 words are because your prospect won’t stick around.
It’s like the difference between a cheesy pick-up line and a
thoughtful conversation-starter. When you introduce yourself, put
content on your homepage, or write the headline of an article,
communicate with your target audience’s interests in mind.

To move from Strangers to Acquaintances:
You’ve attracted attention, so now what? You must keep your prospect
engaged. The best way to do that is to ask them questions about
themselves, related to problems you can solve. At this point in the
“conversation” (while networking, on your website, in an article,
through direct mail, on the phone, in a sales meeting) it should be
all about them, not about you.

Instead of going on about your services, use short questionnaires,
self-assessments and attentive questions to…

* Ask about what they struggle with, wish they could do better, or
want from your kind of professional service;

* Learn as much as you can about their world and reciprocate slowly
by answering their questions;

* Let them control the pacing, without overwhelming them with too
much information that they haven’t asked for.

* Determine if you can send an article related to their needs that
they might find of value.

Basic (but effective) relationship-building tactics include a hand-
written follow-up note, sending the article you mentioned, and
politely gauging interest in more contact. At this point, it may be
appropriate to take another step to get to know each other better (a
first date!) in the form of a follow up call, meeting over coffee, or
office visit.

To move from Acquaintances to Friends:
This may be where a prospect decides to buy your services, but
probably not. It’s too early – you haven’t built your case yet for
how you’re uniquely qualified to do a better job at meeting your
prospect’s needs than anyone else in your field.

To build your case, you need to demonstrate your reliability,
staying power and visibility (i.e., through a WIIFM-oriented e-
newsletter); authority (through credentials, testimonials, case
studies, and awards); value (by clearly communicating outcomes and
results, and demystifying how you’ll work together); and minimize the
buyer’s risk (through guarantees, references, follow through).

This could be when a prospect is willing to spend a little bit of
money with you on something perceived as low-risk. For example, you
could sell your expertise packaged into information-based products
such as workbooks, lessons or talks on tape or CD, and premium
reports. All of these things let prospects get to know you better,
deepen trust, and help move their confidence in you to the next level.

To move from Friends to Lovers:
You’ve built your case, demonstrated to your client’s satisfaction
that you’re a safe bet, and continue to stand out from the crowd.
You’ve discussed the tough things like money, decision-making
authority, and possible derailleurs. Deepening the commitment with
you feels natural, safe and like the right thing to do.

As Lovers, you’ll be engaged in regular and long-term business.
You’ll learn a lot about each other, communication preferences, how
to navigate conflict, and how to manage expectations. You’ll only
sustain the relationship at this level if you keep it fresh by
continuing to gauge and meet their needs. You can’t take their
business for granted. Innovation is important, based on what your
best clients ask for or struggle with.

To move from Lovers to Loyal Partners:
Newer, flashier competitors may come on the scene, but your Loyal
Partners aren’t going anywhere. You alone are their number one choice
for the professional service your firm provides. If someone else
approaches them, they’ll let you know about it and give you a chance
to meet their needs first. As with any successful long-term
relationship, you’ve learned to use conflict constructively, don’t
take their loyalty for granted, and continue to reward them for their
trust and commitment.

In a worthwhile relationship, you can’t rush something good. Think
about moving through these phases over time – not in one conversation
or even two meetings. When it’s too good too soon, relationships are
usually hollow or troubled (with clients and in love!). I’ve learned
to slow down, pace the conversation, and ask a lot of questions. The
results are consistently better and longer lasting.

Whatever you do, your message and actions have got to be authentic
and in your clients’ best interests. Any smart prospect or client
will see right through the “lines” of a Player – someone who’s only
out for the score. I doubt that’s how you want to be positioned in
the marketplace, and it’s certainly no way to build a business.

If this sounds like a lot of work, you’re right. But consider the
payoff: rock solid, long lasting relationships with clients that
deepen and enrich everyone over time.

(c) 2004 TurningPointe Marketing, Inc. All rights reserved.
Marketing educator, Kelly O’Brien, is creator of the “Create a
TurningPointe!” Marketing Bootcamp. To learn more about this step-by-step
program, and to sign up for FREE how-to articles and 20-page marketing
guide, visit http://www.turningpointemarketing.com