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Critical Examination Of The Financial Market Efficiency Introduction Any mechanism organized for trading financial assets or liabilities

is termed financial market. It is a market in which financial assets and liabilities are traded (Richard & Bill, 2006). Financial assets in this context include all forms of securities ranging from common stocks to derivatives. Efficiency as it is commonly used can be seen as the ability to achieve desired result without wasted efforts or energy (Encarta dictionary, 2009). In other words, it has to do with how resources are productively utilized, the extent to which something is done well. Efficiency of financial market can thus be said to encompass how financial assets and liabilities are productively exchanged and funds effectively invested in Financial Market Instruments. However, exchange of securities for funds cannot be done except with a price willingly accepted by both parties while the price is determined mostly by the value and extent of information available to investors in the market. This paper however discusses the efficiency of financial markets exploring theories and assumptions and explaining in details, all terminologies (majorly price and information) relating to financial market efficiency. Literature Review Extensive findings have been conducted on the efficiency of financial market. This has led to the development of different theories such as; determination of values of securities, effect of information on share prices, dividend policies to mention a few. Definition of Financial Market Financial market, according to Olowe, 1997, is a mechanism by which surplus and deficit units of an economy can be brought together through the buying and selling of financial claims. He further asserts that the primary function of financial markets is to enable funds to be effectively allocated from the surplus units in the economy to the deficit units for productive investments. Richard and Bill, 2006, view financial market as any mechanism for trading financial assets and securities. They further explain that frequently, there is no physical market place; transactions are being conducted via telephone or computer. It is any market in which financial assets and liabilities are traded and a mechanism through which corporate financial managers have access to a wide range of sources of finance and instruments. Capital markets however function in two important ways: Primary markets providing new capital for business and other activities, usually in the form of share issues to new or existing shareholders or loans. It provides the focal points for lenders and borrowers to meet. Primarily, new finance is raised in this market. Secondary markets trading existing securities, thus enabling existing investors to dispose their holdings at will. An active secondary market is a necessary condition for