Equity: Market Efficiency Flashcards
Abnormal Return
The amount by which a securities actual return difference from its expected return, given the securities risk and the markets return
Active investment
An approach to investing in which the investor seeks to outperform a given benchmark
Active Return
The return on a portfolio minus the return on the portfolios benchmark
Arbitrage
A risk-free operation that earns an expected positive net profit but required no net investments of money
Behavioral Finance
A field of finance that examines psychological variables that affect and often distort the investment decision making of investors, analysts, and portfolio managers
Data Mining
The practice of determine a model by extensive searching and trough a data set for statistically significant patterns
Data Snooping
The practice of determining a model by extensive searching through a data set for statistically significant patterns.
Earnings Surprise
The portion of a company’s earnings that is unanticipated by investors and according to the efficient market hypothesis, merits a price adjustment
Efficient Market
A market in which asset prices reflect new information quickly and rationally
Fundamental Analysis
The examination of publicly available information and the formulation of forecasts to estimate the intrinsic value of assets.
Fundamental value
The underlying or true value of an asset based on an analysis of its qualitative and quantitative characteristics
Herding
Clustered trading that may or may not be based on information.
Information cascade
The transmission of information from the those participants who act first and whose decisions influence the decisions of others
Informationally efficient market
A market in which assets prices reflect new information quickly and rationally
Intrinsic value
The value obtained if an option is exercise based on current conditions.
January effect
Calendar anomaly that stock market returns in January are significantly higher compared to the rest of the months of the year, with most of the abnormal returns reported during the first five trading days in January
Loss Aversion
The tendency of people to dislike losses more than they like comparable gains
Market anomaly
Change in the price or return of a security that cannot directly be linked to current relevant information known in the market or to the release of new information into to the market
Market Value
The price at which an asset or security can currently be bought or sold in an open market
Passive investment
A buy and hold approach in which an investor does not make portfolio changes based on short-term expectations of changing market or security performance
Risk Aversion
The degree of an investors inability and unwillingness to take risk
Semi-strong-form efficient market
A market at which security prices reflect all publicly known and available information
Short selling
Short selling a transaction in which borrowed securities are sold with the intention to repurchase them at a lower price at a later date and return them to the lender
Strong-form efficient market
A market in which security prices reflect all public and private information
Technical analysis
A form of security analysis that uses price and volume data, which is often displayed graphically, in decision making
Turn-of-the-year effect
Calendar anomaly that stock market returns in January are significantly higher compared to the rest of the months of the year, with most of the abnormal returns reported during the first 5 days in January
Weak-form efficient market hypothesis
The belief that security prices fully reflect all past markets data, which refers to all historical price and volume trading information
