AFM401 Chapter : 04 Efficient Securities Market.pdf
6 Nov 2013
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Capital(asset(pricing(model: rate(of(return(for(a(share, ex#ante(and(ex#post(returns, expected(return(model, market(model, the prices fell despite having a good year because The increase in earnings did not meet expectations. . 61 per share but ge reported an increase of only . 57. There may be noise trading involved (people who trade regardless of what"s happening their trades affect the market price but their decisions don"t depend on the information available) Revenue growth is a good indicator because it does not include expenses. Once revenues exceed fixed cost, net income is expected in increase. Since a company may have high expenses which hurts them in terms of profiting. The efficient market can look at r expenses and start up costs and back these out to obtain a better idea of income (these costs are not expected to occur each year). These two have to be considered, as well as md&a and other info. Relevant because it gives a clearer idea of what revenues will be.
