Week 5 Flashcards
Efficient financial market
Market where prices incorporate all relevant information
Weak efficiency
Prices incorporate all information from records of past prices
Semistrong efficiency
Prices incorporate all public information
Strong efficiency
Prices reflect all the information that can be acquired by painstaking analysis
Random walk
Series appeared to be a wondering one
Momentum
Stocks that have delivered superior returns over the last few weeks, tend to deliver superior returns in the future
Event studies
Examine abnormal returns on samples of stocks that encountered same type of news release
Market model
Adjustment based on betas
Bubbles
Investors get caught up in speculative frenzy, asset prices reach a level that cannot be easily justified by outlook on profits and dividends
Limit to arbitrage
Limits on ability of rational investors to exploit market inefficiencies
Arbitrage
Investment strategy that guarantees superior returns without any risk
Sell short
Borrow shares from another investor’s portfolio, sell them, wait until prices fall and buy back stock for less than you sold
Levered equity
Stock of company that has a debt
Gearing
Benefits and costs of financial gearing
Law of conservation of value
Value of an asset is preserved regardless of nature of claims against it
