BUS 421 Chapter Notes - Chapter 4: Capital Asset Pricing Model, Efficient-Market Hypothesis, Cash Flow

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 421
• Professor: Irene Gordon

Document Summary

Efficient securities market (esm: market efficiency is a relative concept, market prices is not omniscient ( ) and does not always reflect real underlying value. Firms should disclose as much information about themselves as is cost effective: the more i(cid:374)for(cid:373)atio(cid:374) a fir(cid:373) dis(cid:272)loses a(cid:271)out itself, the greater is i(cid:374)(cid:448)estors" (cid:272)o(cid:374)fide(cid:374)(cid:272)e i(cid:374) the working of the securities market, since there is less insider information. Should not be concerned about the na ve investor. Accountants are in competition with other sources of information. If accountants do not provide useful and cost-effective information, the role of the accounting function will decline over time as other information sources take over. Relationship between efficient market price of a security, its risk, and its expected rate of return. I(cid:374)di(cid:272)ates ho(cid:449) share pri(cid:272)e depe(cid:374)ds o(cid:374) a i(cid:374)(cid:448)estors" e(cid:454)pe(cid:272)tatio(cid:374)s of future share pri(cid:272)e a(cid:374)d di(cid:448)ide(cid:374)ds. Separates realized return on share into expected and unexpected components.