Week6 - behave – In an efficient market changes in the stock price should be random and unpredictable – When new information arrives the

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Week 6 Stock market efficiency
Background image of page 1

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

View Full DocumentRight Arrow Icon
Market efficiency In an informationally efficient stock market, the price of a stock fully and correctly incorporates all relevant information Logical argument for why stock market should be efficient
Background image of page 2
Forms of efficiency Stock market is neither totally inefficient, nor totally efficient More interesting question is the degree of efficiency – what kind of information is (or isn't) incorporated into the stock price? Past history of stock prices (weak form efficiency) Publicly available information (semis-strong form efficiency) All available information public and private (strong form efficiency)
Background image of page 3

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

View Full DocumentRight Arrow Icon
Features of an efficient market If the stock market is efficient how should it
Background image of page 4
Background image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: behave? – In an efficient market, changes in the stock price should be random and unpredictable – When new information arrives the response of the stock price should be instantaneous and on average correct – There should be no way to use publicly available information to earn “excess” returns – No group of investors should be consistently able to earn excess returns Evidence on stock market efficiency ● Seasonal patterns in stock returns – The weekend effect – The turn-of-the-year effect ● Stock price response to new information ● Use of publicly available information to earn excess returns – Size – Price-earnings ratios ● Performance of professional investors...
View Full Document

This note was uploaded on 01/18/2011 for the course FINANCE Fin580 taught by Professor Chen, w during the Fall '10 term at University of Illinois, Urbana Champaign.

Page1 / 5

Week6 - behave – In an efficient market changes in the stock price should be random and unpredictable – When new information arrives the

This preview shows document pages 1 - 5. Sign up to view the full document.

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