321Class12-EMH%20%26%20Risk - Efficient Market Hypothesis...

Info iconThis preview shows pages 1–16. Sign up to view the full content.

View Full Document Right Arrow Icon
Efficient Market Hypothesis
Background image of page 1

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

View Full DocumentRight Arrow Icon
Rational Decision Making Randomness Efficient Markets Academic issues vs. real decisions Investor behavior Market behavior Corporate behavior
Background image of page 2
Lessons of Market Efficiency 1. Markets have no memory 2. Trust market prices 3. Read the entrails 4. There are no financial illusions 5. The do-it-yourself alternatives
Background image of page 3

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

View Full DocumentRight Arrow Icon
Risk v. Return
Background image of page 4
Defining Risk Insurance definition: Probability of an event * value of the event Frequency * Severity Financial definition: Deviation from the expected return Deviation from the mean
Background image of page 5

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

View Full DocumentRight Arrow Icon
Risk = Unpredictable Outcome Pure Risk Loss No Loss Speculative Risk Loss No Loss GAIN Risk = Variation from expected outcome
Background image of page 6
Risk Management Process
Background image of page 7

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

View Full DocumentRight Arrow Icon
Named Risks Business risk Strategic risk Operational risk Legal/Regulatory risk Physical risk Systemic risk Modeling risk Auditor risk model, estimation risk, projection
Background image of page 8
Strategic Risk Examples Competition Regulation Technological innovation Political impediments Modeling errors
Background image of page 9

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

View Full DocumentRight Arrow Icon
Operational Risk Causes of operational risk Internal processes People Systems Examples Product recall Customer satisfaction Information technology Labor dispute Management fraud
Background image of page 10
Hazard Risk “Pure” loss situations Property Liability Employee related Independence of separate risks Risks can generally be handled by Insurance, including self insurance Avoidance Transfer
Background image of page 11

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

View Full DocumentRight Arrow Icon
Financial Risks Financial Risk Market risk Transactional risk Interest rate risk Liquidity risk Credit risk Bankruptcy
Background image of page 12
Market Risks Unique Risk Stand-alone Risk Market Risk Systematic Risk Systemic Risk
Background image of page 13

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

View Full DocumentRight Arrow Icon
Risk Measurements Exposure Volatility Probability Severity Time horizon Correlation Capital
Background image of page 14
Management
Background image of page 15

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

View Full DocumentRight Arrow Icon
Image of page 16
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/28/2011 for the course FIN 321 taught by Professor Smith during the Fall '08 term at University of Illinois at Urbana–Champaign.

Page1 / 48

321Class12-EMH%20%26%20Risk - Efficient Market Hypothesis...

This preview shows document pages 1 - 16. Sign up to view the full document.

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