MGM332H5 Lecture Notes - Efficient-Market Hypothesis, Financial Regulation, Capital Market
Document Summary
Operational efficiency: a market condition in which transaction costs are low. If it"s too expensive to trade securities, it will be difficult for firms to raise capital, and investment will be lower than it should be. Allocation efficiency: market condition in which there are enough securities to efficiently allocate risk. Informational efficiency: a market condition in which important information is reflected in share prices. If managers announce details of a decision that they think should increase market values. Investors will analyze the information and market prices will likely increase. If share prices are chaotic (share prices reflect past actions in a predictable way that is magnified many times), they will not reflect the information in the announcement, it will instead reflect past pact ions. Managers have no idea whether their owners agree or disagree with their decision. Share prices are like a score sheet used to evaluate management.
