428_lecture3B_limitArbitrage_stu_S09

428_lecture3B_limitArbitrage_stu_S09 - Reminds: Course...

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Reminds: Course Blackboard http://blackboard.cornell.edu/ AEM 428: Valuation of Capital Investment Course participation
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Yahoo Posts Loss as New Chief Plots Strategy WSJ, January 28, 2009 Reported a net loss of $303.4 million (-$.22 a share), compared with net income of $205.7 million, ($.15 a share), a year earlier. It was the first quarter loss since 2002. Revenue for the 4qtr was $1.81 billion, down 1.4% from the same period the previous year. In her first earnings conference call, CEO Carol Bartz said she didn't join Yahoo to simply sell all or parts of the company, a move some Yahoo investors have vigorously encouraged. For the current quarter, Yahoo forecast $1.53 billion to $1.73 billion in revenue, compared with revenue of $1.82 billion in the first quarter of 2008. Shares of Yahoo, which reported its results after the close of regular trading, increased 5% after hours to $11.95 after finishing at $11.34 on the Nasdaq.
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Limits to Arbitrage (continued) AEM 428 Manny Dong Materials from Rosenthal & Young 1990; Froot & Dabora 1999; Cooper et al. 2001 & 2005; Rashes 2001; Flynn 2003; Jong et al. 2004,
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Review: Why do we think P=V? We do because of arbitrage. What happens if P < V or P >V?
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Review: What are the Problems of Joint Hypotheses to Test P=V? Model Problem (Do we have CF and r correctly?) Market Inefficient?
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Review: What Is Law of One Price? Identical securities have same valuations (same CFs and discount rates) should have same prices. What happens if the law is violated?
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Review: Why Do We Use the Siamese Twins To Test MEH? To overcome joint-hypotheses problem How?
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Review: Why Do Price Ratios of Dutch/Shell Deviate from 60/40 Parity?
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How would behavioral finance explain the price differential? and Shell is a British stock in the FTSE. The price differential should rise with increases in the S&P and the CBS and fall with increases in the FTSE. On July 10, 2002, S&P announced it was dropping all foreign stocks, including Royal Dutch, from the index. The Premium had been 6% the previous day, but fell to 1% on the announcement.
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How would behavioral finance explain the price differential? What about the arbitrage that suppose to push the price
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This note was uploaded on 09/22/2009 for the course AEM 4280 taught by Professor Ng,d. during the Spring '08 term at Cornell University (Engineering School).

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428_lecture3B_limitArbitrage_stu_S09 - Reminds: Course...

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