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Unformatted text preview: 8)MarketEfficiency-value of assets are unbiased estimated of their true value, = chance that the asset is under/overvalued. WeakForm- prices reflect info from past prices and stats. Momentum vs. reversals. SemiStrong- prices reflect all publically available information. Midway up graph. Ex.CEO resigns. StrongForm- prices reflect all information, stock,public,private.Ex.MutualFunds don’t do better than the market on avg. Anomalies- evidence inconsistent with mkt efficiency. JointHypothesisProb- impossible to ever test mkt efficiency,cant be rejected. 9)Overconfidence- experienced based. Extrapoliation- process of setting new data points outside the normal area.Leads to high P/E ratio. Anchoring- set ideas, don’t change expectations even when new info comes in. FramingErrors- MentalAccounting is when cash is needed, investors may spend dividends, but wont sell stock. RegreatAvoidence- regret from losses is > joy of gains. LimitsToArbitrage- FundamentalRisk-changes in fundamentals can wipe out any profits.ShortSale- make it difficult to arbitrage overprices securites.ModelRisk can always be wrong. A lot of it is not pure arbitrage, its risky...
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This note was uploaded on 11/15/2011 for the course FIN 401 taught by Professor Staff during the Spring '08 term at Miami University.
- Spring '08