Market Anamolies ..!!

Before we begin discussing about the various anamolies that the stock market experiences, it would wise to define these financial jargons.

Efficiency as we all know can be divided in to 3 parts : the weak form efficiency, semi-strong form efficiency and the strong form efficiency. Weak form efficient market prices reflect all the past price information, the semi-strong form reflects all the public information available and the strong form reflects all the public and private information available.

Hence we can say that:
The strong form efficient market = Weak form efficient + Semi-strong form efficient Markets.

An Anamoly is the behaviour inconsistent with Models and/or Market Efficiency.

The Anamoly we would be discussing is the price behaviour which is inconsistent with the semi-strong form of markets.

Some of the well known anamolies are the small firm effect, the book-to-market ratio, the weekend and month effects, post earnings announcement drifts, short run momentum, market crash of 1987 and excess volatility.

These anamolies help explain the price behaviour in the stock market. Also recently we have seen effects such as the take-over news effect, merger and acquisitions announcement effects, and the most recent one of Anticipation Announcement Effect ( the announcement by a well know financial figure of what he/she expects from the market ).

In order to be a successful in the stock market, one has to be good with numbers and understand that at the end of the day its human psychology. Herding behaviour is consistent throughout. Unless you want to be a Trader, there is nothing much one has to know to make small consistent profits in the stock market. But be warned, its addictive.