1_marketefficiency_corporate_TAU

1_marketefficiency_corporate_TAU - CAPITAL MARKET...

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Market Efficiency - Dr. Shlomit Zuta 1 CAPITAL MARKET EFFICIENCY In this lecture we will discuss: 1. Efficient Capital Markets 2. A Random Walk down Wall Street: Chartists Momentum Players Contrarians 3. The evidence on efficient capital markets 4. Implications for the individual investor
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Market Efficiency - Dr. Shlomit Zuta 2 1. Efficient Capital Markets An Efficient Capital Market a market in which current prices fully reflect available information one in which trading rules and strategies do not consistently ”beat the market” Price Behavior in an Efficient Market immediate stock price reaction to new information
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Market Efficiency - Dr. Shlomit Zuta 3 1. Efficient Capital Markets – cont’d The Efficient Market Hypothesis (EMH) modern stock markets are efficient Why Efficient? Competition among investors and traders makes a market efficient
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Market Efficiency - Dr. Shlomit Zuta 4 Capital Markets and the EMH Prices respond immediately to new information Future price changes are impossible to predict Mispriced stocks (those whose future price level can be predicted accurately) are impossible to identify and exploit It is impossible to “beat the market” consistently
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Market Efficiency - Dr. Shlomit Zuta 5 The Forms of Market Efficiency A. Weak Form Efficiency: you can't consistently beat the market using past prices and returns. A. Semi-strong Form Efficiency: you can't consistently beat the market using all publicly available information: prices, annual reports, announcements to shareholders… you can't beat the market knowing what everyone knows!
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Market Efficiency - Dr. Shlomit Zuta 6 The Forms of Market Efficiency – cont’d A. Strong Form Efficiency: no information of any kind can be used to beat the market - public as well as private information .
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