financial market theory

Financial market theory explores how investors buy and sell assets like stocks, bonds, and currencies, and how these activities determine prices. It suggests that markets are influenced by information, investor behavior, and economic conditions, often moving toward fair values through supply and demand. Key ideas include the Efficient Market Hypothesis, which states that prices reflect all available information, and risk-return tradeoff, meaning higher potential returns usually come with higher risk. Overall, the theory aims to explain market dynamics, guide investment strategies, and assess financial risks in a systematic way.