The document discusses several theoretical approaches to analyzing financial markets, including the efficient market hypothesis (EMH) and the adaptive market hypothesis (AMH). The EMH suggests that markets are efficient and prices fully reflect all available information, while the AMH combines EMH with behavioral economics by proposing that people are rational but sometimes irrational during periods of volatility, and they adapt and learn from their mistakes over time. The document also examines research on noise trading, informed vs. uninformed traders, and empirical evidence that both past prices and nonpublic information can be used to generate profits.
According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments.
Discuss the differences between weak form, semi-strong form and strong form capital market efficiency, and critically evaluate the significance of the efficient market hypothesis (EMH) for the financial manager, using examples or cases in real-life.
This slide set is a work in progress and is embedded in my Principles of Finance course, which is also a work in progress, that I teach to computer scientists and engineers
http://awesomefinance.weebly.com/
According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments.
Discuss the differences between weak form, semi-strong form and strong form capital market efficiency, and critically evaluate the significance of the efficient market hypothesis (EMH) for the financial manager, using examples or cases in real-life.
This slide set is a work in progress and is embedded in my Principles of Finance course, which is also a work in progress, that I teach to computer scientists and engineers
http://awesomefinance.weebly.com/
According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments.
Arbitrage pricing theory & Efficient market hypothesisHari Ram
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Arbitrage pricing theory (APT) is a multi-factor asset pricing model based on the idea that an asset's returns can be predicted using the linear relationship between the asset's expected return and a number of macroeconomic variables that capture systematic risk.
This is a Behavioral Finance Lesson material which delivered by me for PhD students of Faculty of Business Administration in Karvina, Silesian University.
: Security and Portfolio Analysis :Efficient market theoryRahulKaushik108
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Key Concepts of Efficient market theory: Very Lucid presentation , very Useful for MBA student to understand the Concepts of Efficient Market theory( Random walk hypotheses ) .The key idea of the hypotheses is" no one can efficiently out predict the market" or in other terms, technical analysis or fundamental analysis can not beat "the naive buy and hold strategy".
A brief understanding of market efficiency. this ppt includes a definition of market efficiency, what are the factors to be considered, degree of ME-
first-degree,
second degree
third degree,
why the study of market efficiency is important.
An example to understand.
According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments.
Arbitrage pricing theory & Efficient market hypothesisHari Ram
Â
Arbitrage pricing theory (APT) is a multi-factor asset pricing model based on the idea that an asset's returns can be predicted using the linear relationship between the asset's expected return and a number of macroeconomic variables that capture systematic risk.
This is a Behavioral Finance Lesson material which delivered by me for PhD students of Faculty of Business Administration in Karvina, Silesian University.
: Security and Portfolio Analysis :Efficient market theoryRahulKaushik108
Â
Key Concepts of Efficient market theory: Very Lucid presentation , very Useful for MBA student to understand the Concepts of Efficient Market theory( Random walk hypotheses ) .The key idea of the hypotheses is" no one can efficiently out predict the market" or in other terms, technical analysis or fundamental analysis can not beat "the naive buy and hold strategy".
A brief understanding of market efficiency. this ppt includes a definition of market efficiency, what are the factors to be considered, degree of ME-
first-degree,
second degree
third degree,
why the study of market efficiency is important.
An example to understand.
Model Attribute Check Company Auto PropertyCeline George
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In Odoo, the multi-company feature allows you to manage multiple companies within a single Odoo database instance. Each company can have its own configurations while still sharing common resources such as products, customers, and suppliers.
This is a presentation by Dada Robert in a Your Skill Boost masterclass organised by the Excellence Foundation for South Sudan (EFSS) on Saturday, the 25th and Sunday, the 26th of May 2024.
He discussed the concept of quality improvement, emphasizing its applicability to various aspects of life, including personal, project, and program improvements. He defined quality as doing the right thing at the right time in the right way to achieve the best possible results and discussed the concept of the "gap" between what we know and what we do, and how this gap represents the areas we need to improve. He explained the scientific approach to quality improvement, which involves systematic performance analysis, testing and learning, and implementing change ideas. He also highlighted the importance of client focus and a team approach to quality improvement.
Operation âBlue Starâ is the only event in the history of Independent India where the state went into war with its own people. Even after about 40 years it is not clear if it was culmination of states anger over people of the region, a political game of power or start of dictatorial chapter in the democratic setup.
The people of Punjab felt alienated from main stream due to denial of their just demands during a long democratic struggle since independence. As it happen all over the word, it led to militant struggle with great loss of lives of military, police and civilian personnel. Killing of Indira Gandhi and massacre of innocent Sikhs in Delhi and other India cities was also associated with this movement.
2. Theoretical Underpinnings
⢠A great deal of research has been devoted ever since to formulating
theoretically the efficient market hypothesis, building up market efficiencyâ
the idea that âprices fully reflect all available informationââ into one of the
most important concepts in economics.
⢠In markets where, according to Lucas (1978), all investors have ârational
expectations,â prices do fully reflect all available information and marginal-
utility-weighted prices follow martingales.
⢠Market efficiency has been extended in many other directions, including the
incorporation of nontrade assets such as human capital, state-dependent
preferences, heterogeneous investors, asymmetric information, and
transaction costs.
3. Theoretical Underpinnings
⢠In Fischer Black's (1986) presidential address to the American
Finance Association, he argued that financial market prices were
subject to ânoise,â which could temporarily create inefficiencies
that would ultimately be eliminated through intelligent investors
competing against each other to generate profitable trades.
⢠Financial markets by hypothesizing two types of tradersâ informed
and uninformedâ where informed traders have private information
better reflecting the true economic value of a security, and
uninformed traders have no information at all, but merely trade for
liquidity needs
4. Theoretical Underpinnings
⢠Grossman and Stieglitz (1980) suggest that market efficiency is
impossible because if markets were truly efficient, there would be
no incentive for investors to gather private information and trade ,
provide a more detailed analysis in which certain types of
uninformed traders can destabilize market prices for periods of time
even in the presence of informed traders.
⢠The evidence against the EMH and in favor of technical analysis
emerged in the work of Treynor and Ferguson (1985), who show
that it is not only the past prices, but the past prices plus some
valuable nonpublic information, that can lead to profit.
â˘
5. Empirical Evaluation
⢠Grossman and Stieglitz (1980) suggest that market efficiency is
impossible because if markets were truly efficient, there would be
no incentive for investors to gather private information and trade ,
provide a more detailed analysis in which certain types of
uninformed traders can destabilize market prices for periods of time
even in the presence of informed traders.
⢠The evidence against the EMH and in favor of technical analysis
emerged in the work of Treynor and Ferguson (1985), who show
that it is not only the past prices, but the past prices plus some
valuable nonpublic information, that can lead to profit.
6. Adaptive Market Hypothesis
⢠The adaptive market hypothesis (AMH) combines principles
of the well-known and often controversial efficient market
hypothesis (EMH) with behavioral finance
⢠Andrew Lo, the theoryâs founder, believes that people are
mainly rational, but sometimes can overreact during periods
of heightened market volatility.
⢠AMH argues that people are motivated by their own self-
interests, make mistakes, and tend to adapt and learn from
them.
7. Adaptive Market Hypothesis
⢠Adaptive market hypothesis (AMH) attempts to marry the theory
posited by EMH that investors are rational and efficient with the
argument made by behavioral economists that they are actually
irrational and inefficient.
⢠For years, EMH has been the dominant theory. It states that it is
not possible to "beat the market" because companies always trade
at their fair value, making it impossible to buy undervalued stocks
or sell them at exaggerated prices.
⢠Behavioral finance emerged later to challenge this notion, pointing
out that investors were not always rational and stocks did not
always trade at their fair value during financial bubbles, crashes,
and crises.
8. Adaptive Market Hypothesis
â˘Adaptive market hypothesis (AMH) considers both these
conflicting views as a means of explaining investor and
market behavior. It contends that rationality and
irrationality coexist, applying the principles of evolution
and behavior to financial interactions.
â˘The adaptive market hypothesis (AMH) is based on the
following basic tenets:
- People are motivated by their own self-interests
- They naturally make mistakes
- They adapt and learn from these mistakes
9. Example of Adaptive Market Hypothesis (AMH)
â˘During the housing bubble, people leveraged up and
purchased assets, assuming that price mean reversion
wasn't a possibility because it hadn't occurred
recently. Eventually, the cycle turned, the bubble burst
and prices fell.
â˘One of them referred to an investor buying near the
top of a bubble because he or she first developed
portfolio management skills during an extended bull
market.