Management and Organizational Studies 3311A/B Chapter Notes - Chapter 14: Efficient-Market Hypothesis, Rationality, Insider Trading

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 3311A/B
• Professor: Jun Wang

Document Summary

Chapter 14 corporate financing decisions and efficient capital markets. Can financing decisions create value: issue debt or securities, pay dividends or buyback shares, the prices of securities will change immediately to reflect relevant information. Efficient market hypothesis (emh: emh one in which stock prices fully reflect available information (3 types of information past, public, and private) Reaction of stock price to new information in efficient and inefficient markets. In an efficient market (green line) the stock price increases. In an inefficient market (red line), the investors have an overreaction and the stock price jumps higher than it should be. Investors will respond slowly to the news, and price slowly increases. In an efficient market (green line) the stock price decreases. In an inefficient market (red line), the investors have an overreaction and the stock price jumps lower than it should be. Investors will respond slowly to the news, and price slowly decreases.