Chapter 8 - The Efficient Market Hypothesis Flashcards
The hypothesis that prices of securities fully reflect all available information about securities.
Efficient Market Hypothesis
The notion that stock price changes are random and unpredictable.
Random Walk
The assertion that stock prices already reflect all information contained in the history of past trading.
weak-form EMH
The assertion that stock prices already reflect ALL publicly available information.
semistrong-form EMH
The assertion that stock prices reflect all relevant information, including inside information.
strong-form EMH
Research or recurrent and predictable stock price patterns and on proxies for buy or sell pressure in the market
Technical Analysis
A price level above which it is supposedly unlikely for a stock or stock index to rise.
Resistance Level
A price level below which it is supposedly unlikely for a stock of stock index to fall.
Support Level.
Research of determinants of stock value, such as earnings and dividend prospects, expectations for future interest rates, and risk of the firm.
Fundamental Analysis
Buying a well-diversified portfolio without attempting to search out mispriced securities.
Passive Investment Strategy
A mutual fund holding shares in proportion to their representation in a market index such as the S&P 500.
Index Fund
The tendency of poorly performing stocks and well-performing stocks in one period to continue that abnormal performance in the following periods.
Momentum Effect
The tendency of poorly performing stocks and well-performing stocks in one period to experience reversals in the following period.
Reversal Effect
Patterns of returns that seem to contradict the efficient market hypothesis.
Anomalies
Portfolios of low P/E stocks have exhibited higher average risk-adjusted returns than high P/E stocks.
P/E effect.
