FNCE 239 Study Guide - Midterm Guide: Risk Aversion, Bayes Estimator, Prospect Theory
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E [cf ( 1+ e[ r t =1. The idea that every asset is priced as it should be. The real price is equal to the fundamental value. The price of any asset is equal to the expected price. Emh doesn"t say what expected cf or e[r] are. Forms: weak form- past prices and volume informaion cannot predict future prices. Technical analysis (using price and volume informaion; algorithms to trade and get arbitrage) is a waste of ime. It will not give you abnormal returns, because all this informaion is already included in the inal price. o. Semi-strong form- public informaion cannot predict future returns. Technical analysis and fundamental analysis are a waste of ime. Includes industry research, public interviews w/ceos, and past trades &prices. You can"t get arbitrage through fundamental analysis. o. Strong form- all informaion (public and private) cannot predict future returns. Emh requires that/assumpions (if any one of these is true, then emh is true.