Ch 9 - Efficient market hypothesis Flashcards
What is the EMH?
An investment theory whereby share prices reflect all information accurately and speedily. When this occurs investors cannot consistently make super gains as buying and selling becomes fair gain.
What are super gains/supernormal profits?
Those that are earned in excess of the expected returns for a given level of risk
The EMH states that it is impossible for investors to either purchase _______ stocks or sell __________ stocks
Undervalued, overvalued
What is weak form effciency?
Security prices fully reflect all historical info associated with it
What is technical analysis?
The process of studying and analyzing asset patterns and trends with the intention to develop trading rules in order to exploit the patterns and trends
What is semi strong efficiency?
Security prices reflect all public info in addition to the historical info of stocks
What is fundamental anaylsis?
Using publicly available info to understand whether a stocks fundamentals are strong
If intrinsic value > mkt value —>
underpriced
If intrinsic value < mkt value —>
overpriced
What is strong form efficient?
In addition to historical and public info, security prices reflect private info
When markets are efficient, actual returns = ______
Eqm returns
When assets are mispriced, investors can make excess returns by buying _____ assets and short selling _______- assets
Undervalued, overvalued
What is the joint hypothesis problem?
Testing for market efficiency is difficult due to the issues of informational efficiency and the accuracy of the chosen model
