PHYSICS 102 Lecture Notes - Lecture 11: Behavioral Economics, Business Cycle, Advantageous
Document Summary
Chapter 8 the efficient market hypothesis: random walks and efficient markets. A forecast about favourable future performance leads instead to favourable current performance, as market participants all try to get in on the action before the price increase. The stock prices should follow a random walk= that price changes should be random and unpredictable. Investors will have an incentive to spend time and resources to analyse and uncover new information only if such activity is likely to generate higher investment returns. In market equilibrium, efficient information-gathering activity should be fruitful: the degree of efficiency differs between the markets: small stocks that receive relatively little coverage by wall street analysts may be less efficiently priced than large ones. Alternative data firms have emerged to uncover and sell to large investors information firms use satellite imagery to estimate the height of oil tanks and thus the size of oil stocks.
