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Possessed regardless empirical evidence indicates

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Unformatted text preview: dicates that markets are Empirical NOT strong form efficient and that insiders could earn abnormal returns earn 13 13 Semistrong Form Efficiency Prices reflect all publicly available information Prices including trading information, annual reports, press releases, etc. press If the market is semistrong form efficient, then If investors cannot earn abnormal returns by trading on public information trading Implies that fundamental analysis will not lead to Implies abnormal returns abnormal 14 14 Weak Form Efficiency Prices reflect all past market information such Prices as price and volume as If the market is weak form efficient, then If investors cannot earn abnormal returns by trading on market information trading Implies that technical analysis will not lead to Implies abnormal returns abnormal Empirical evidence indicates that markets are Empirical generally weak form efficient generally 15 15 Expected versus Unexpected Expected Returns Returns Realized returns are generally not equal to Realized expected returns expected There is the expected component and the There unexpected component unexpected At any point in time, the unexpected return can be At either positive or negative either Over time, the average of the unexpected Over component is zero component 16 16 Announcements and News Announcements and news contain both an Announcements expected component and a surprise component expected It is the surprise component that affects a stock’s It price and therefore its r...
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