Behavioral challenges in attaining efficiency
In the security markets, personal subjective analyses may indicate that securities of a certain company are overpriced. Arbitrage would result in shorting such shares with an aim that gain will be made when investor realize they are overpriced. Such behavior may prove futile when investors fail to remain the same eliminating chances for such gains.
Another challenge in behavioral analyses is that people are not always rational. For instance, an investor may purchase stock, having noted that many of her family members or friends have purchased the same securities ( Palan, 2007) . This implies that such individuals do not carry out the proper appraisal. They may also have relied on limited information and emotions in decision making. If every investor would assume a behavioral approach in investment, then market efficiency would be difficult to attain.
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Three Forms of Market Efficiency
Weak Form Market Efficiency
This form of efficiency is also referred to as the efficient market hypothesis. It states that the prices of securities in the market reflects all the market data that is available in the market. The implication is that information in the market has been incorporated influencing the prices of the securities as well as the volume of securities that are traded in the mark
Semi-Strong Form
Semi-strong form market efficiency indicate that all of the information that is available publicly has been incorporated in the price of securities in the market. Unlike the weak form efficiency, strong form efficiency incorporates data beyond traded volumes and prices ( Palan, 2007) . It takes into consideration other information such as the news articles and company statements available to the investors in the market.
Strong Form Market Efficiency
The strong form can also be referred to as the perfect market theory states that since all information is available to the investors, having insider information would not help the investor to make a better decision ( Palan, 2007) . For instance, in a market index, nobody can have insider information about it considering that it brings together securities from multiple companies.
Implications for Corporate Finance
The existence of different forms of market efficiency impact corporate finance. Accounting entities have scarce resources that they seek to invest in the market. This implies that they have to invest such resources in securities that are likely to generate the highest returns ( Eichhorn, & Towers, 2018) . Under semi-strong form, it implies that only market information is available and hence getting insider information from companies may enable such investors to make better investment decisions. Under semi-strong form, corporate decision makers would thus need to provide their financial statements to potential investors as they would influence decision making in the market. Under the strong from it implies that such company information is available to investors hence there would be no need for seeking insider information in decision making.
Real estate markets
Real estate markets are not efficient markets. Unlike the security markets where prices of similar securities are the same and the volume is easy to identify, resulting in weak form efficiency, the same is not possible in the real estate markets. Equally, there is a high level of information asymmetry of changes in house prices and appreciation of properties, making it difficult to trade in this market in an efficient manner ( Harder, 2010) . Behavioral investments in the real estate market are also common. Many people do not invest in particular estates basedon the evaluation. Rather, they do it to boost their social status something that makes them ignore proper valuation. The market can thus not be said to efficient as it always has opportunities for arbitrage.
References
Eichhorn, P., & Towers, I. (2018). Principles of management: Efficiency and effectiveness of the private and public sector . Cham, Switzerland: Springer
Harder, S. (2010). The Efficient Market Hypothesis and its Application to Stock Markets . München: GRIN Verlag GmbH.
Palan, S. (2007). The efficient market hypothesis and its validity in today's markets . München: GRIN Verlag.
