Description
It also explains the levels of market efficiency and efficient market hypothesis.
?
Market price of a security is an unbiased estimate of its
intrinsic value
? ? ?
MP not necessarily always equal to intrinsic value Deviation from intrinsic value is random Deviation has no correlation with any observable variable
?
Weak-form efficiency: prices reflect all information
found in the record of past prices and volumes
?
Semi-strong form: prices reflect information found in the past price and volume records as well as all publically available information
?
Strong-form: prices reflect all available information, public as well as private
?
The efficient-market hypothesis states that it is impossible to consistently outperform the market by using any information that the market already knows, except through luck.
?
Market has perfect forecasting abilities
? Prices only impound available information
?
As prices tend to fluctuate, they would not reflect fair
value
? Future is uncertain; hence prices have to fluctuate to showcase this uncertainty
?
Random movement of stock suggests that stock market
is irrational
? Randomness is possible only if investors are rational and competitive
doc_406185305.ppt
It also explains the levels of market efficiency and efficient market hypothesis.
?
Market price of a security is an unbiased estimate of its
intrinsic value
? ? ?
MP not necessarily always equal to intrinsic value Deviation from intrinsic value is random Deviation has no correlation with any observable variable
?
Weak-form efficiency: prices reflect all information
found in the record of past prices and volumes
?
Semi-strong form: prices reflect information found in the past price and volume records as well as all publically available information
?
Strong-form: prices reflect all available information, public as well as private
?
The efficient-market hypothesis states that it is impossible to consistently outperform the market by using any information that the market already knows, except through luck.
?
Market has perfect forecasting abilities
? Prices only impound available information
?
As prices tend to fluctuate, they would not reflect fair
value
? Future is uncertain; hence prices have to fluctuate to showcase this uncertainty
?
Random movement of stock suggests that stock market
is irrational
? Randomness is possible only if investors are rational and competitive
doc_406185305.ppt