TAILIEUCHUNG - Lecture Financial markets - Lecture 6: Efficient markets and excess volatility

Lecture Financial markets - Lecture 6: Efficient markets and excess volatility. In this chapter, the following content will be discussed: Efficient Markets Hypothesis vs. Random walk, apparent inability of professionals to make money, Warren Buffet and David Swensen: What does their experience prove? | Lecture 6: Efficient Markets and Excess Volatility The Efficient Markets Hypothesis History of the Hypothesis Reasons to think markets are efficient Reasons to doubt markets are efficient Technical analysis Empirical evidence in literature Homework assignment and regressions Earliest Known Statement “When shares become publicly known in an open market, the value which they acquire there may be regarded as the judgement of the best intelligence concerning them.” - George Gibson, The Stock Exchanges of London Paris and New York, G. P. Putnman & Sons, New York, 1889 Intuition of Efficiency Reuter’s pigeons and the telegraph Beepers & the internet Must be hard to get rich Textbook Version Today As one of the six most important ideas in finance: “Security prices accurately reflect available information, and respond rapidly to new information as soon as it becomes available” Richard Brealey & Stewart Myers, Principles of Corporate Finance, 1996 Harry Roberts, 1967 Weak form efficiency: prices incorporate information about past prices Semi-strong form: incorporate all publicly available information Strong form: all information, including inside information Price as PDV of Expected Dividends If earnings equal dividends and if dividends grow at long-run rate g, then by growing consol model P=E/(r-g), P/E=1/(r-g). (Gordon Model) So, efficient markets theory purports to explain why P/E varies across stocks PEG ratio is popular indicator = g’/(P/E), where g’ is short-run growth rate; popular rule of thumb: buy if PEG< PEG rule of thumb makes sense only if g’ bears a certain relation to g; not a sensible rule. Efficient markets denies that any rule works Reasons to Think Markets Ought to Be Efficient Marginal investor determines prices Smart money dominates trading Survival of fittest Reasons to Doubt these Reasons Marginal investor: wealth matters Smart money: matter of degree. Limits to arbitrage theory Survival of fittest: life cycle renews Psychological Factors Gambling

• Tài chính doanh nghiệp
• Financial markets
• Lecture Financial markets
• Economics 252
• Efficient markets
• Excess volatility
• Efficient Markets Hypothesis
• Thị trường tài chính
• Financial futures markets
• Valuation of financial futures
• Interest rate futures
• Financial institutions
• Lecture Financial markets and institutions
• Financial institutions markets
• Capital markets
• Money markets
• Derivative securities markets
• Futures markets
• Option markets
• Swap markets
• Foreign exchange derivative markets
• Bank management
• Types of Financial Markets
• Securities traded
• Valuation of securities
• Money market yields
• Bond markets
• Municipal bonds
• Mortgage markets
• Primary mortgage market
• Stock markets
• Common stock
• Foreign exchange markets
• Foreign exchange
• Commercial banks
• Financial statements
• Risks at financial institutions
• Market risk
• Exchange rates
• Interest rate derivative markets
• Interest rate swaps
• Mortgage backed securities
• Globalization of mortgage markets
• Financial markets and institutions
• The financial system
• Interest rates change
• Financial markets efficient
• Term structure affect interest rates
• The stock market
• The mortgage markets
• The international financial system
• Financial regulation
• Interest rate fundamentals
• Interest rates
• Security valuation