RSM332H1 Chapter Notes - Chapter 10: Insider Trading, Value Investing, Mental Accounting
Document Summary
The markets must be competitive, meaning no one investor can significantly affect the price of the security through their own buying and selling. Information is costless and widely available to market participants at the same time. Information arrives randomly and therefore announcements over time are not serially connected. Investors react quickly and fully (and reasonably accurately) to the new information, which is reflected in stock prices. The efficient market hypothesis (emh) is the theory that markets are efficient and therefore, in its strictest sense, implies that prices accurately reflect all available information at any given time. Weak form emh: weak form emh is the theory that security prices reflect all market data, referring to all past price and volume trading information. Implication: markets that are weak-form efficient will have all historical trading data reflected or discounted in current prices and these should be of no value in predicting future prices changes.
