CHAPTER 9

Presentation Transcript

Efficient Market Hypothesis

Ifalltheinvestorsknew Koza Altın’sstockprice is goingtojumpfrom 30 TL to 40 TL in 3 dayswhatwouldthey do?

(takeoverannouncement, premium, publicannouncement)

The efficient market hypothesis implies that technical analysis is without merit
Reflectionintostockprices
Abnormalreturnsandexpectationsaboutthem
Example: the marketbelievesthat a level of TL 8 truly isa resistance level for Mardin çimento stocks

Willa technicalrule that seems to work will continue to work in the future once it becomes widelrecognized?
Doesthe rule itself becomes reflected in stock prices once itsvalue is discovered?
Self-destructingpatterns
Yet-undiscoveredrules

Let’sassumeyouhave 10,000 TL andfind an opportunitytoearnextra 1 %. Howgood is this?
AmyLucaswhoruns a portfolio of 10 billion $ finds an opportunitytoearnextra 1 %. Howgood is this?
Costs?
Is watching CNBCE goingtohelpyoubecomerich?

If small investors are not in a favored position to conduct active portfolio management,what are their choices?
Mutualfundsandtheirbenefits
Can investors be sure that even large mutualfunds have the ability or resources to uncover mispriced stocks?

If the market is efficient, why not pick stocks by throwing darts at Borsa Istanbul?
Whybothertryingtodiversify?
Whichstocksshoulda Toyota executive whose annual bonus depends on Toyota’sprofits generally not invest additional amounts in?
Wouldyouinvest in thesameportfolioassetsrightnow as youwouldwhenyouare 67 yearsold?

Investors of varying ages also might warrant different portfolio policies with regardto risk bearing. For example, older investors who are essentially living off savings mightchoose to avoid long-term bonds whose market values fluctuate dramatically with changesin interest rates (discussed in Part Four). Because these investors are living off accumulatedsavings, they require conservation of principal. In contrast, younger investors might bemore inclined toward long-term inflation-indexed bonds. The steady flow of real incomeover long periods of time that is locked in with these bonds can be more important thanpreservation of principal to those with long life expectancies.In conclusion, there is a role for portfolio management even in an efficient market.Investors’ optimal positions will vary according to factors such as age, tax bracket, riskaversion, andemployment.