Chapter 13 - Chapter 13 Definition of efficient capital...

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Chapter 13 Definition of efficient capital markets Types of market efficiency Empirical evidence Implications for corporate managers 13.2 – A description of efficient capital markets Efficient capital market is one where stock prices fully reflect available information, i.e. information given is immediately reflected in a stock’s price Efficient Market Hypothesis ’ implications for investors and firms - awareness of information when it is released doesn’t help an investor, the price adjusts before the investor has time to trade it in - Firms should receive the present value for the securities they issue. Financing opportunities from fooling investors aren’t available. After an announcement, in an inefficient market, a stock’s price increase can be delayed or over valued by irrational investors. Rational professionals would arbitrage the value of the stock so that the stock hits its true market value. 13.3 – Different Types of Efficiency The Weak Form Weak efficiency if market uses past stock information to drive decisions. Stock prices that follow the weak form efficiency equation (p.355) are said to follow a
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Chapter 13 - Chapter 13 Definition of efficient capital...

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