MGT 200 Lecture Notes - Lecture 9: Efficient-Market Hypothesis, Current Yield, Net Present Value
Document Summary
Efficient market hypothesis stocks are prices at their intrinsic value / fair market value. Traders analyze and react to news right away. Mispricing investors buy low (undervalued) and sell high (overvalued) jump to new price. Takeover announcement of target firm being bought by an acquirer. Target firm experiences positive market reaction price increases. Acquirer experiences negative market reaction price decreases. Overestimate synergy and overpay for the takeover firm. In a perfectly efficient market- the positive market reaction. In the real world, we see 3 examples of market inefficiencies. Actual eps > projected eps outperform the expectation. Majority of reaction is in the first 30 minutes. 3 forms of market efficiency: weak can"t trade on past information to earn abnormal profits. Technical- using past prices and volume information to predict future prices. Observe pattern in price movement by looking at price charts. Buy at and sell at based on historical price movement.