l11&12 : share price behaviour & informational efficiency Flashcards
1
Q
what is return on an investment?
A
the holding period rate of return on an investment / security over a single holding period of length t - aka the gain / loss from an investment.
2
Q
what are the two mains characteristics of a return on an investment?
A
- arithmetic average return
- standard deviation / return variability / volatility of return
3
Q
what is the average arithmetic return of an investment?
A
measures what you expect to earn each period as things even out over time
4
Q
what is the return variability of an investment?
A
gives a measure of how far from the average you expect the return to be in any one period
5
Q
why do share prices change?
A
- informational efficiency (price reflect all info available to investors)
- capital market efficiency (prices react immediately to reflect new info)
6
Q
what is informational inefficiency?
A
when prices systematically under react or overreact with subsequent corrections. can therefore predict unexpected returns.
