Ch12-EMH

Ch12-EMH - Efficient Market Hypothesis Chapter 12 Efficient...

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Efficient Market Hypothesis Chapter 12
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Efficient Market Hypothesis EMH: stock price adjust to new information rapidly Stock price reflect all available information
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EMH Assumptions Large no of profit-maximizing participants analyze and value stocks independently New information arrive in random fashion Investors adjust prices rapidly to reflect new informaion Expected return consistent with its risk
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Random Walk Random Walk : stock price change is unpredictable Best estimate of future price is current price
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Forms of efficiency Weak form EMH – prices reflect all market information Semi-strong EMH – prices reflect all public information Strong EMH – prices reflect all public and private information
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Weak form EMH Price reflect all current and past market information, eg Historical prices, rate of return, trading data such as volume, shares transacted, Any other market generated information Implies past rate of return and other market data have NO relationship with future return
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This note was uploaded on 07/12/2011 for the course FINA 221 taught by Professor Na during the Spring '09 term at HKUST.

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Ch12-EMH - Efficient Market Hypothesis Chapter 12 Efficient...

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