Efficient+Market+Hypothesis

Efficient+Market+Hypothesis - Efficient Market Hypothesis...

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1 Efficient Market Hypothesis Reading: Chapter 11
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2 Efficient Market Hypothesis (EMH) Do security prices reflect information? Why look at market efficiency? Implications for business and corporate finance Required rate of return for capital budgeting and investment decisions Implications for investment Valuation of investment based on market expectations Asset pricing models (CAPM and APT) assume efficient market prices
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3 Market Efficiency Definition : Markets are Efficient if prices of securities fully reflect all available information about securities. Market efficiency Prices change only due to new information and/or changed expectations
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Random Walk Stock price changes should be random and unpredictable Flow of information is random Prices react fully and quickly to public information The randomness of security price changes is evidence of market efficiency Market participants analyze and trade on new information immediately
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Efficient+Market+Hypothesis - Efficient Market Hypothesis...

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