week 07 Market Efficiency

week 07 Market Efficiency - Market Market Efficiency Last...

Info iconThis preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
arket Efficiency 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
Last Time ± Multi-factor models ² What are the factors? hat is the relationship between return and factors? ² What is the relationship between return and factors? ² How to measure exposure to factors? ± Arbitrage pricing theory ² Key assumptions ² Claim actor risk premium ± Factor risk premium ² Identifying arbitrage opportunities Week 7 FINS5513 2
Background image of page 2
Market Efficiency ± Information efficiency: ² The degree to which price reflects the most up-to-date formation information. ± Why do we care? ² vestment strategies Investment strategies ² Investor welfare ² Bubbles and crashes ± Can we predict future returns? ² Technical analyses? ² Fundamental analyses? ² Market manipulation? sider information? Week 7 FINS5513 3 ² Insider information?
Background image of page 3

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

View Full DocumentRight Arrow Icon
Daily Price of GE 102 104 98 100 94 96 90 92 88 02 0 4 0 6 0 8 0 1 0 0 Week 7 FINS5513 4
Background image of page 4
Trend and Predictability ± The price path is simulated: P t = P t-1 + x t where E(x t )=0, Cor(x t ,x t-1 )=0 ± This process is called a random-walk ² By construction, any trends that appear in a particular sample rice path arise purely from chance price path arise purely from chance ² There are no rules that will help us identify trends in time for us to profit by them ± Do trends imply predictability? ± Do prices follow random walks? ² What if x t =ax t-1 +e t with a 0?
Background image of page 5

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

View Full DocumentRight Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 13

week 07 Market Efficiency - Market Market Efficiency Last...

This preview shows document pages 1 - 6. Sign up to view the full document.

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