Capital Market Research

Question 1

What are share markets also referred to as?

Answer 1

Capital markets

Question 2

What is the mechanistic hypothesis?

Answer 2

That investors mechanistically respond to accounting numbers, assuming investors fixate on reported profit, ignoring the accounting policies used in calculating profit. That share prices respond mechanistically to changes in accounting numbers, ignoring the effects of accounting policies

Question 3

What is the efficient market hypothesis?

Answer 3

that current share prices reflect all existing publicly available information, making them fairly valued as they are presently. A market is efficient if share prices fully reflect the available information.

Question 4

What are the 3 levels of market efficiency?

Answer 4

Weak form (historical information), semi strong form (all publicly available information) and strong form (all publicly available information plus insider trading)

Question 5

What are the implications of semi strong form market efficiency?

Answer 5

No one can earn abnormal returns, prices follow a random walk, investors face a fair game

Question 6

What 3 techniques does EMH cast doubt on?

Answer 6

Technical analysis (charting), Market timing, fundamental analysis (looking for mispriced shares)