Chapter 8 - The Efficient Market Hypothesis. Flashcards
Define Anamalies
Patterns of returns that seem to contradict the efficient market hypothesis.
Define Book-To-Market Effect
The tendency for investments in shares of firm with high ratios of book value to market value to generate abnormal returns.
Define Efficient Market Hypothesis
The hypothesis that prices of securities fully reflect available information about securities.
Define Fundamental Analysis
Research on determinants of stock value, such as earnings and dividend prospects, expectations for future interest rates, and risk of the firm.
Define Index Fund
A mutual fund holding shares in proportion to their representation in a market index such as the S&P 500.
Define Momentum Effect
The tendency of poorly performing stocks and well-performing stocks in one period to continue that abnormal performance in following periods.
Define Neglected-Firm Effect
The tendency of investments in stock of less well-known firms to generate abnormal returns.
Define Passive Investment Strategy
Buying a well-diversified portfolio without attempting to search out mispriced securities.
Define P/E Effect
Portfolios of low P/E stocks have exhibited higher average risk-adjusted returns than high P/E stocks.
Define Random Walk
The notion that stock price changes are random and unpredictable.
Define Resistance Level
A price level above which it is supposedly unlikely for a stock or stock index to rise.
Define Reversal Effect
A price level above which it is supposedly unlikely for a stock or stock index to rise.
Define Semistrong-Form EMH
The assertion that stock prices already reflect all publicly available information.
Define Small-firm Effect
Stocks of small firms have earned abnormal returns, primary in the month of January.
Define Strong-form EMH
The assertion that stock prices reflect all relevant information, including inside information.
