Acct Theory- Mod 3 Flashcards
What is the main concept of Module 3
Efficient Security Markets
Are all shares on the market equally liquid?
No
More demand for a share= More liquid share
What are the 4 main types of markets?
Stock Markets
Bond Markets
Commodities Markets
Money Markets
In an efficient security market, what is reflected in the prices?
All information that is publicly known is reflected in the price
What is market efficiency?
It is a relative concept, all information may not be known, but as soon as information becomes known, the market price will quickly adjust
How are shares priced?
At what investors think they are worth, based on public info
What are the 3 possible market strengths? Which one do we have in reality? Describe each
Weak- Only Historical Info
Semi Strong- All publicly known information is reflected in the price.
Strong- Everyone knows everything
We have a semi-Strong market
What affects share prices
Inside information uniformed buying and selling Noise traders Market Trends Herd Mentality
What happened with Bre-x (Handout)?
Overstated the potential gold deposits in their claim
Started to generate buzz, everyone jumped on hoping to get rich
Share price sky rocketed
Gold deposits were re-stated downward, everyone sold as fast as they could, which crashed the share price
What was the result of the Beaver study in 1973?
Company accounting policies do not affect stock price as long as there is no impact on cash flow
Why does accounting need to provide timely, accurate and cost effective information?
Because there are competing sources for information:
Analysts
News Media
Internet
Company press releases
What is the Capital Asset Pricing Model?
A method for calculating the predicted future share price
What are the 3 main uses of the Capital Asset Pricing Model?
Model for analysts to estimate Beta
A way to seperate the realized return on a share from an unexpected or abnormal return
Predict future share price
How do we control or mitigate estimation risk?
Insider Trading Laws
Financial Reporting
What is the purpose of MD&A?
Discuss recent performance, overall financial condition, and future prospects.