Finance notes 3 - B Behavior of stock market prices...

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Behavior of stock market prices B information -> stock valuation- investors form belief -> investor reasses asset -> stock price change about discounted cash flow value when new info. a Question: Whether prices adjust quickly and correctly when new info. arrives (is market efficient?) ( Efficient market: prics fully reflect available information E Example: AMD been secretly making processor AMD - 2$ NPV per share = 4$, theyare added together when the new chip comes out, making the new value 6$, if the makrets efficient enough, it will go up to 6$ immediately until next new chip comes out. In an inefficient market: market takes a few days to recognize this new technology or the stock overshoots and then lowers back to 6$ r Efficiency: - Unexpected news can affect stock price - changes in stock price should be random and unpredictable Stock prices follow a "Random Walk" - what makes it efficient?
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This note was uploaded on 09/08/2010 for the course BUS 170 at San Jose State University .

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Finance notes 3 - B Behavior of stock market prices...

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