ECON 3P03 Lecture Notes - Efficient-Market Hypothesis, Rational Expectations, Mutual Fund
19 Dec 2013
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Efficient market hypothesis (application of rational expectations in the pricing of securities) Implications: stock price follow a random walk. Where nt is random has a mean of zero; h is uncorrelated over time and has constant variance. b. ex post returns (realized returns deviate from average market returns randomly) It is uncorrelated over time and has constant variance. Ket = ke + t+1 inventing: published reports of financial analysts are not very valuable, should be skeptical of not tips, either the tips are old news (already reflected in the market price of. 3. 2 implications for investing (important part) stocks) or privileged information subject to insider-trading penalties: stock prices may fall on good news. 3. 3 prescription for investor traded funds-etfs). i shares and etfs are securities that track an index, or a commodity but trade like a stock on an exchange, some of the advantages of etfs compared to mutual funds are:
