ECON 3420 Discussion 5

ECON 3420 Discussion 5 - Financial Economics Discussion...

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Financial Economics Discussion Question 6 9 18 th October, 2010 Q6: General Theory suggests stock prices are able to move far away from the fundamentals. Due to the advances in technology of communication, nowadays, this theory is increasingly relevant. The improvements of IT and electronic media have provided the investors with handy access to information. At best, more information exposed can reduce the information cost. At worst, more confusion of information and asymmetric information would probably be raised. The misleading information will misdirect people, especially those people with ignorance, to irrationally put their money onto the stock market. This can be perceived as a kind of herd behavior which barricades the market from achieving the most efficient position. The increasing number of noise traders following suit will mess up the stock prices which were supposed to reflect the value of fundamentals. Thus, the more our communication system is advanced, the more this theory is relevant. 9 Q7 : EMH has pointed out that under an efficient investment market, no one, even professionals, is able to earn excess profit by analyzing the historical prices, public and private information because they are all disclosed by the current prices. And
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ECON 3420 Discussion 5 - Financial Economics Discussion...

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