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And the intial value of the investment v0 3 others

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Unformatted text preview: bnormal returns. Thus, it can be accepted that there is strong form efficiency. Note that insider trader is illegal. To control corporate insiders, they are required to disclose their trading on shares of their companies within a specified time frame to the stock exchange for public release to the market. For legal reasons, it is unlikely that published trades are based on insider information. Insiders may buy and share sells of the company for legitimate reasons, such as the selling of shares because of the increased equity exposure to their companies. Thus studies on the profitability of these published trades is to test whether the market is semi-strong form efficient in processing publicly available information, rather than testing for strong form efficiency. 8 Cheryl Mew FINS2624 – Portfolio Management Semester 1, 2011 Although corporate insiders on average earned profits on trading their own stocks, investors are not able to make any abnormal returns by following their actions. This implies that the market is semi-strong form efficient, as the information content is fully reflected by the stock prices once the trades are known to the general public. In summary, the market efficiency and its link to the CAPM was examined. It is the disbelief in the CAPM’s assumptions of investors having homogeneous information and behaving rationally that motivates a number of market participants to search for information and identify strategies that can beat the market. 9 Cheryl Mew FINS2624 – Portfolio Management Semester 1, 2011 L ECTURE 10 – P AYOFF AND PROFIT/LOSS DIAGRAMS E X-CHANGE TRADED VS. OTC OPTIONS Options are derivatives, which gives the holder a right to buy or sell the underlying asset at a predetermined price. Its value is determined by the value of the underlying asset, such as a currency, stock, market index, futures, etc. Exchange traded options are standardized by and traded in an organized exchange such as the CBOE and the ASX. Over-the-counter options are options negotiated privately negotiated contract which is tailor-made to suit the requirements of the party initiating the trade. The focus...
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