FIN 300 Lecture Notes - Lecture 10: Dow Jones Industrial Average, Efficient-Market Hypothesis, Managerial Finance
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Security prices change without predictable trends or patterns. Stock prices seem to go up or down on any particular day, regardless of what has occurred on previous days. The(cid:396)efo(cid:396)e, o(cid:374)e (cid:272)a(cid:374)"t use past patte(cid:396)(cid:374)s to p(cid:396)edi(cid:272)t futu(cid:396)e p(cid:396)i(cid:272)e (cid:272)ha(cid:374)ges. Random walk is a proof of market efficiency. Since all information is rapidly incorporated into the price of the stock, all stocks are (cid:272)o(cid:396)(cid:396)e(cid:272)tl(cid:455) p(cid:396)i(cid:272)ed a(cid:374)d (cid:374)o i(cid:374)(cid:448)esto(cid:396) o(cid:396) issue(cid:396) (cid:272)a(cid:374) ea(cid:396)(cid:374) (cid:862)e(cid:454)(cid:272)ess(cid:863) (cid:396)etu(cid:396)(cid:374)s. Weak form: market prices reflect all information contained in past market prices. Semi-strong form: market prices reflect all publicly available information. Strong form: market prices reflect all known information. Bay street and wall street often do not agree with the emh. Technical analysts search for patterns in past prices attempt to predict future stock prices. Emh says trading rules should not work. Technical analysis may not work, but technical analysts can help keep the markets efficient.