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Chapter 17 Capital Market Efficiency Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance 9e by Peirson, Brown, Easton, Howard and Pinder 17–1 Prepared by Dr Buly Cardak Learning Objectives • Understand the concept of market efficiency. • Distinguish between different categories of market efficiency. • Understand the methods used to test for market efficiency. Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance 9e by Peirson, Brown, Easton, Howard and Pinder 17–2 Prepared by Dr Buly Cardak Learning Objectives (cont.) • Understand the major trends in tests of market efficiency that have uncovered evidence that is ‘anomalous’ from a market efficiency viewpoint. • Understand the implications of the developing field of behavioural finance for the efficient market hypothesis. • Understand the implications of market efficiency for investors and financial managers. Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance 9e by Peirson, Brown, Easton, Howard and Pinder 17–3 Prepared by Dr Buly Cardak Efficient Market Hypothesis (EMH) • ‘EMH’: that the price of a security (such as a share) accurately reflects all available information. • If the market processes new information efficiently, the reaction of market prices to new information will be instantaneous and unbiased. • The concept of efficient markets with respect to information was introduced by Fama (1970). Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance 9e by Peirson, Brown, Easton, Howard and Pinder 17–4 Prepared by Dr Buly Cardak A Non-Instantaneous Price Reaction • An instantaneous price reaction would, in practice, mean that after new information becomes available it should be fully reflected in the next price established in the market. • If the market often fails to react instantaneously, share traders can develop simple rules to generate excess profits. – Simply purchase shares immediately after a company makes an unanticipated announcement of good news. – If the reaction is not instantaneous, a positive profit will be earned. Copyright 2006 McGraw-Hill Australia Pty Ltd PPTs t/a Business Finance 9e by Peirson, Brown, Easton, Howard and Pinder 17–5 Prepared by Dr Buly Cardak ... - tailieumienphi.vn
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