Bài giảng Investment - chapter 11: The Efficient Market Hypothesis

CHAPTER 11The Efficient Market HypothesisDo security prices reflect information ?Why look at market efficiency?Implications for business and corporate financeImplications for investmentEfficient Market Hypothesis (EMH)Figure 11.1 Cumulative Abnormal Returns Before Takeover Attempts: Target CompaniesFigure 11.2 Stock Price Reaction to CNBC ReportsStock prices fully and accurately reflect publicly available informationOnce information becomes available, market participants analyze itCompetition assures prices reflect informationEMH and CompetitionWeakSemi-strongStrongVersions of the EMHTechnical Analysis - using prices and volume information to predict future pricesWeak form efficiency & technical analysisFundamental Analysis - using economic and accounting information to predict stock pricesSemi strong form efficiency & fundamental analysisTypes of Stock AnalysisActive ManagementSecurity analysisTimingPassive ManagementBuy and HoldIndex FundsActive or Passive ManagementEven if the market is efficient a role exists for portfolio management:Appropriate risk levelTax considerationsOther considerationsMarket Efficiency & Portfolio ManagementEmpirical financial research that enables an observer to assess the impact of a particular event on a firm’s stock priceAbnormal return due to the event is estimated as the difference between the stock’s actual return and a proxy for the stock’s return in the absence of the eventEvent StudiesReturns are adjusted to determine if they are abnormalMarket Model approacha. rt = at + brmt + et (Expected Return)b. Excess Return = (Actual - Expected) et = rt - (a + brMt)How Tests Are StructuredMagnitude IssueSelection Bias IssueLucky Event IssueAre Markets EfficientWeak-Form TestsReturns over the Short HorizonMomentumReturns over Long HorizonsPredictors of Broad Market ReturnsFama and FrenchAggregate returns are higher with higher dividend ratiosCampbell and ShillerEarnings yield can predict market returnsKeim and StambaughBond spreads can predict market returnsP/E EffectSmall Firm Effect (January Effect)Neglected Firm Effect and Liquidity EffectsBook-to-Market RatiosPost-Earnings Announcement Price DriftSemistrong Tests: AnomaliesFigure 11.3 Average Annual Return for 10 Size-Based Portfolios, 1926 – 2006Figure 11.4 Average Return as a Function of Book-To-Market Ratio, 1926–2006Figure 11.5 Cumulative Abnormal Returns in Response to Earnings AnnouncementsStrong-Form Tests: Inside InformationThe ability of insiders to trade profitability in their own stock has been documented in studies by Jaffe, Seyhun, Givoly, and PalmonSEC requires all insiders to register their trading activityInterpreting the EvidenceRisk Premiums or market inefficiencies—disagreement hereFama and French argue that these effects can be explained as manifestations of risk stocks with higher betasLakonishok, Shleifer, and Vishney argue that these effects are evidence of inefficient marketsFigure 11.6 Returns to Style Portfolio as a Predictor of GDP Growth Interpreting the Evidence ContinuedAnomalies or Data MiningThe noisy market hypothesisFundamental indexingStock Market AnalystsDo Analysts Add ValueMixed evidenceAmbiguity in resultsSome evidence of persistent positive and negative performancePotential measurement error for benchmark returnsStyle changesMay be risk premiumsHot hands phenomenon Mutual Fund PerformanceFigure 11.7 Estimates of Individual Mutual Fund Alphas, 1972 - 1991Table 11.1 Performance of Mutual Funds Based on Three-Index Model Figure 11.8 Persistence of Mutual Fund PerformanceTable 11.2 Two-Way Table of Managers Classified by Risk-Adjusted Returns over Successive Intervals