FIN 501 Study Guide - Efficient-Market Hypothesis, Data Dredging, Insider Trading
31 Jul 2012
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Document Summary
Chapter 8 stock price behaviour and market efficiency. Efficient market hypothesis (emh): the hypothesis stating that, as a practical matter, investors cannot consistently. In a practical matter, organized financial markets are efficient. Excess return: a return in excess of that earned by other investments having the same risk. The difference between what that investment earned and what other investments with same risk earned. Positive excess return means that an investment has outperformed other investments of the same risk. Three economic forces can lead to market efficiency: Rational means that only investors do not systematically overvalue or undervalue financial assets in light of the information they possess. Market efficiency does not require everybody be rational, just that somebody is. A market is efficient with respect to some particular information if that information is not useful in earning a positive excess return.
