AFM121 Chapter Notes - Chapter 13: Technical Analysis, Fundamental Analysis, Dividend Discount Model

• School: University of Waterloo
• Department: Accounting & Financial Management
• Course: AFM121
• Professor: Craig Geoffrey

Document Summary

What are the 2 most important factors affecting the value of a security: expected profitability. There are two primary styles for valuing securities (i. e. estimating the price): fundamental analysis: o o. Most important factor affecting security prices: considered to be the expected future profitability of the issuer: technical analysis: o o. Uses market prices (stock, bond, derivative), trading volumes, and other market data in hopes of identifying recurring pattern. Both styles incorporate qualitative (interpretation) and quantitative (statistics) aspects. Efficient market hypothesis (emh) (asset prices fully reflect available information) Emh argues that all available information is used to determine current prices: Implication if emh is true: you can"t systematically beat the market. Over time, you cannot expect someone to beat the market year after year. Half the time you"re better than the market, half the time you"re worse: changes in prices follow a random walk; nobody can beat the market except by luck o.