FNCE 239 Chapter Notes - Chapter 4: Arbitrage, Trading Strategy, Capital Asset Pricing Model

• School: UPenn
• Department: Finance
• Course: FNCE 239
• Professor: N I K O L A I R O U S S A N O V

Document Summary

Authors" beliefs lie somewhere between fama and shiller on emh; not as efficient as what fama believes but not as inefficient as what sinclair claims. There is a strong correlation between those who believe in efficient markets and those who believe in a free-market system. Market efficiency- security prices fully reflect all available information. Joint hypothesis problem- you can"t say anything about market efficiency by itself. You can only say something about the coupling of market efficiency and some security pricing model. At first, the joint hypothesis worked, but now, there are 2 problems: microchallenges center on return anomalies. Researchers have identified other factors that explain differences in: macrochallenges expected returns across securities in addition to a security"s market beta (i. e. value and momentum) In general, stock with lower price multiples tend to produce higher average returns than stocks with higher price multiples. Beta is not the only source of risk.