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12-2 market effiency

12-2 market effiency - I t’s whether its information is...

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Unformatted text preview: I t’s whether its information is efficient How quickly is information reflected in prices? Why should we even care the values of things decide what happened I t’s the prices and values that determine what people do Prices are fundamental to understanding finance what determines prices I ts information changes the possible value of item Expected cash flow is based on information How well does price reflect information so it’s very fundamental it’s assumed when we learned the stuff earlier? How do we justify it? In an effect market you cannot consistently make money you can look to prices of thinks for guidance on how to make decisions so the idea is asking what is right what is wrong just look at the prices We must make money have positive npv and return greater than op cost You cannot consistently make money 3 kinds of effienciency weak form efficiency, semi-strong efficiency and strong form efficiency each is a nested subset of the other suppose Information is all historical in a weak form it is impossible to consistently make...
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12-2 market effiency - I t’s whether its information is...

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