4POT1_041140597_TMA-2.docx - Question 1 This idea consist of random walk theory because of the main idea from behind of the random walk theory is that

4POT1_041140597_TMA-2.docx - Question 1 This idea consist...

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Question 1 This idea consist of random walk theory because of the main idea from behind of the random walk theory is that the randomness of stock prices attempts and prefer to follow the price patterns or take granted of latest information. This state that the aerospace do the negative announcement, investor will think that more negative announcement will be made again in the following times. Furthermore, predicting stock prices in the random walk theory states that all methods of are ineffective in the future long run. Malkiel calls the notion of intrinsic value undependable because it relies on subjective estimates of future earnings using factors like expected growth rates, expected dividend payouts, estimated risk, and interest rates. The random walk theory also considers technical analysis undependable because, according to Malkiel, chartists buy only after price trends are established and sell only after price trends are broken; essentially, the chartists buy or sell too late and miss the boat. According to the theory, this happens because stock prices already reflect the information by the time the analyst moves on the stock. Malkiel also notes that the widespread use of technical analysis reduces the advantages of the approach. Further, Malkiel finds fundamental analysis flawed because analysts often collect bad or useless information and then poorly or incorrectly interpret that information when predicting stock values. Factors outside of a company or its industry may affect a stock price, rendering further the fundamental analysis irrelevant.
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Question 2 There are 3 level of market efficiency, which are: 1) The Weak-form efficiency is known as the weak form, it state all the information that can be derived from market date such as interest rate, historical returns, dividend and trading volume. With this level of market efficiency, investor can predict the share value by refer back. Weak-form efficiency state that random walk and trend analysis nothing help and useless. This efficient market hypothesis state that historical market share data such as stock price can easily obtain.
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  • Winter '16
  • Winnie Wong
  • Financial Markets, Efficient-market hypothesis, Random walk hypothesis

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