FINANCE IN A CANADIAN SETTING Sixth Canadian Edition. Lusztig, Cleary, Schwab. CHAPTER NINE Market Efficiency. Learning Objectives. 1. Compare and contrast the three forms of market efficiency. 2. Define and compare fundamental analysis and technical analysis.
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Lusztig, Cleary, Schwab
1. Compare and contrast the three forms of market efficiency.
2. Define and compare fundamental analysis and technical analysis.
3. Discuss the random walk hypothesis and its implications for investors.
4. Explain the role of information in market efficiency and what this means to investors.
5. Discuss the empirical evidence about market efficiency and draw some conclusions.
1. Weak form – states that stock prices fully reflect all information contained in past prices and volumes of trading
2. Semi-strong form – suggests security prices adjust rapidly reflecting all available public information
3. Strong form – implies share prices reflect all public information and relevant information such as insider trading
- The Great Crash of 1929
- Black Monday of 1987
1. Various degrees of market efficiency, such as weak, strong, and semi-strong forms can be distinguished.
2. As in any other areas of business, consistently superior returns can only be achieved through sustainable competitive advantage.
3. The random walk theory postulates that stock price movements are inherently unpredictable.
4. For investors, the existence of efficient markets implies that no benefits are to be derived from researching individual securities since all available information is already reflected in the price.
5. Both investors and corporate managers must pay careful attention to the concepts of market efficiency. “Playing the market” and reliance on expert advice may often not provide the consistent returns claimed or desired.