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Unformatted text preview: blicly available, firm specific, industry specific
and macroeconomic information to arrive at the fair value of a stock. By comparing the fair value of the stock to
the current market price, fundamental analysts gives recommendations to moderate or strong, buy, hold or sell.
Fundamental analysts do not believe in the semi-strong or strong forms of market efficiency, as they believe
they can earn abnormal return from strategies based on publicly available information. However, fundamental
analysts form no opinion on whether the market is weak form efficient or not. As they do not use historical
price and volume data, they are not in a position to comment on the usefulness of this information set.
Contrary to the semi-strong form, Black (1971) and Copeland and Mayers (1982) both found that portfolio of
stocks receiving buy and sell recommendations by the Value Investment Survey consistently earned a positive
or negative risk adjusted return. This is known as the value line enigma and suggests that it is possible to use
fundamental analysis to uncover information not known by others due to skills and sophisticated models. P ROFESSIONAL FUND MANAGERS
Investigations can also be done on the performance of portfolios adopted by the managed funds. The rationale
behind this is that professional fund managers, as a full time profession, are expected to have better access to
publicly available information, better skills to utilize both technical and fundamental information, and the time
to conduct comprehensive analysis.
Jensen (1968) proved that market is semi-strong efficient, where only 1/115 managed funds had a significant
alpha at the 5% level, net of expenses. Carhart in 1997 found that in recent times fund managers on average
earned positive abnormal returns, but their superior performance persisted over time. This means that fund
managers do possess skills and have the ability to consistently beat the market. E VENT STUDIES
Via SIM, if the market is semi-strong form effici...
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