ECON 3430 Lecture Notes - Lecture 12: Efficient-Market Hypothesis, Dividend Discount Model, Rational Expectations

• School: York University
• Department: Economics
• Course: ECON 3430
• Professor: Ahmet Akyol

Document Summary

Chapter 7 the stock market, the theory of rational expectations, and the efficient market hypothesis. Lecture 12: calculate the price of common stock and recognize the impact of new information on stock prices, distinguish adaptive and rational expectations, explain why arbitrage opportunities imply the efficient market hypothesis holds. Identify and explain the implications of the efficient market hypothesis for financial markets: summarize reasons why behavioural finance suggests that the efficient market hypothesis may not hold, common stock is the principal way that corporations raise equity capital. Stockholders have the right to vote and be the residual claimants of all funds flowing to the firm. Receives whatever remains after all other claims agai(cid:374)st the fir(cid:373)"s assets have bee(cid:374) satisfied: dividends are payments made periodically, usually every quarter, to stockholders. The value of stock today is the present value of all future cash flows. If pn is far in the future, it will not affect p0.