ECON-3076EL Lecture Notes - Lecture 10: Financial Economics, Dividend Discount Model, Stock Valuation
28 Feb 2017
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Market orders & limit orders: models to predict stock price (uptick and downtick, how exchanges set stock prices: role of information, monetary policy and share prices. Efficient market hypotheses: why did all experts fail to forecast the stock market crash of 2008, presumption that stock return is normally distributed. Excel: historgam of dow daily returns (jan 1, 2007-jan 1, 2012) Low transactions costs massive volume of transactions every minute. Stock brokers reduce search and transactions costs for traders. Low costs of transaction allow traders to respond quickly to new information about stock price. The market is said to be informationally efficient if market price at time t contains all relevant information available at time t. market price moves only as new information about the stock becomes available to the market. New information (good or bad) hits the market at random; so price movements (returns) of a stock are unpredictable.
