FINE 3200 Lecture Notes - Lecture 8: Active Management, Tulip Mania, Efficient-Market Hypothesis
Document Summary
Forecast about favourable future leads to favourable current performance. Any thing that could be used to predict stock pfm must aly be reflected in stock prices. Fair price level = responded to new i(cid:374)for(cid:373)atio(cid:374) (cid:894)(cid:272)a(cid:374)"t (cid:271)e predi(cid:272)ted(cid:895) Random walk: price changes should be random and unpredictable result of intelligent investors competing to discover relevant info. Stocks already reflect all available info = emh. Degree of efficiency differs across various market (e. g. emerging ones are less intensively analyzed and less clear on. Compete for rare info expect a higher return as compensation actg thus maybe less efficient; small stocks receive relatively low coverage and hence less efficient) Semistrong-form: all publicly available info regarding prospects of firm addition fundamental data. Strong-form: all info relevant to the firm (incld insider info) Insider trading: hard to distinguish b/w private and inside info. Weak-form: all info that can be derived by examining mkt trading data trend analysis.
