Finance 4200 Chapter 9 Outline (Combes).docx

Finance 4200 Chapter 9 Outline (Combes).docx - Julius...

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Julius Combes Finance 4200 Chapter 9: Market Efficiency and Behavioral Finance Efficient Markets -Random Walk hypothesis states predicting stock price movements is very difficult, if not impossible -Efficient Market is a market that rapidly and fully incorporates all additional information The Efficient Markets Hypothesis -Efficient Markets hypothesis (EMH) is the notion that stock prices rapidly incorporate additional information -Abnormal Return (alpha) is the difference between an investment’s actual return and its expected return Weak Form -Weak form of the EMH holds that stock prices fully reflect any relevant information that can be obtained from an analysis of past price movements Semi-Strong Form -Semi-Strong form of the EMH asserts that stock prices fully reflect all relevant information that investors can obtain from any public source Strong Form -Strong form of the EMH holds that the stock market ca rapidly incorporate new information even if it is not disseminated through public sources
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