Black also showed that every portfolio on the

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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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This document was uploaded on 03/21/2014.

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