UnderstandingMarketEfficiency - Understanding Market...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Understanding Market Efficiency 1 Definitions of Market Efficiency: • Weak form Prices reflect all information available in past prices. • Semi-strong form Prices reflect all public information. • Strong form Prices reflect all private information. Note: Markets are strong-form efficient → markets are semi-strong form efficient → markets are weak-form efficient. Tests of Market Efficiency: One of the main ways market efficiency is tested is using event studies . Event studies look at the pattern of prices and returns around a public event (e.g. cuts in dividend payouts, announcements of stock buy-backs, positive or negative earnings surprises). Almost all studies have found that the market’s response to news has the following pattern: • A sudden drop or rise in the stock price on the announcement. • Comparatively little movement in prices in the days following the announcement • Occaisonally there is drift in the “right” direction prior to the announcement....
View Full Document

Page1 / 3

UnderstandingMarketEfficiency - Understanding Market...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online