BFF2140 Lecture Notes - Lecture 12: Efficient-Market Hypothesis, Share Repurchase, Dividend Policy
Document Summary
Distinguish between different levels (forms) of efficiency that relate to different sets of information reflected in security prices. Understand the methods used to test for the different forms of market efficiency. Understand the types of redistribution available and the procedure for payment. Understand the differences between stock repurchase and dividend payout. Emh: that the price of a security (such as a share) accurately reflects the information available. If the market processes new information efficiently, the reaction of market prices to new information will be instantaneous and unbiased. The emh implies that investors cannot earn abnormal returns, or beat the market, by using information that is already available. An instantaneous price reaction would, in practice, mean that after new information becomes available it should be fully reflected in the next price established in the market. If the market often fails to react instantaneously, share traders can develop simple rules to generate excess profits.
