-Dependra Singh Khati

Capital Market Theory

People like return.
People do not like risk. Dispersion around expected return is a reasonable

measure of risk.

Efficient Market
Definition:

Professor Eugene Fama, who coined the phrase efficient markets, defined market efficiency as follows: "In an efficient market, competition among the many intelligent participants leads to a situation where, at any point in time, actual prices of individual securities already reflect the effects of information based both on events that have already occurred and on events which, as of now, the market expects to take place in the future. In other words, in an efficient market at any point in time the actual price of a security will be a good estimate of its intrinsic value."

Level of Efficiency of Capital Market

Meanings of Different Levels

Meaning #1
Weak Version You cannot beat the market using historical information on prices and volumes. Semi-Strong Version You cannot beat the market using any public information. Strong Version You cannot beat the market using any public or private information.

Meaning #2
Historical price and volume info is reflected in the current prices of the stocks. All public information is reflected in the current prices of the stock. All public and private information is reflected in the current prices of the stock.

Anomalies
The Size Effect
The Incredible January Effect P/E Effect. Day of the Week (Monday Effect).