Group 3 - EMH-7.11.11

0epartment of FInance E 8ankIng, JU Corporate FInance
EfficienI McrkeI: HypcIhe:i:

Grcup 03
88/ Frcgrcm, Fir:I 8cIch
DepcrImenI cf Fincnce & 8cnking
Jchcngirncgcr Univer:iIy, 8cng|cce:h
%cpic: Ncw
%cpic:
FunccmenIc|: cf EfficienI McrkeI: HypcIhe:i:
- Specker: Mc. /Lcu| /|i{SIucenI i.c: 127)
EfficienI McrkeI: HypcIhe:i:: EMH
EMH
- Ferhcp: Ihe mc:I impcrIcnI Ihecry in fincnce
- / hypcIhe:i: prcpc:ing IhcI :ecuriIie: cre Iypicc||y in
equ|||br|um
! %hey cre fcir|y pricec
! Fcir|y pricec mecn: price: uick|y cnc cccurcIe|y ccju:I Ic
ref|ecI new infcrmcIicn
|c::ificcIicn cf McrkeI Efficiency
McrkeI Efficiency: |c::ificcIicn
- %wc Iype:
! percIicnc| efficiency
! Fricing efficiency
percIicnc| efficiency
- Hcw we|| mcrkeI: funcIicn in Ierm: cf :peec cf execuIicn cnc
cccurccy cf Ircn:ccIicn:
Fricing efficiency
- Hcw uick|y cnc cccurcIe|y Ihe :ecuriIy price: reccI Ic new
infcrmcIicn
DeIermincnI: cf Efficiency
DeIermincnI: cf Efficiency
- %ype: cf infcrmcIicn inccrpcrcIec in :ecuriIie:
- Speec cf ccju:ImenI Ic new infcrmcIicn
- SeveriIy cf reccIicn Ic new infcrmcIicn
! 8c:icc||y Ihree Iype: cf reccIicn
r Ncrmc| reccIicn
r Uncer reccIicn
r verreccIicn
New lnfcrmcIicn cnc FeccIicn
FeccIicn Ic New lnfcrmcIicn
cming Up.
%cpic: Ic cver NexI.
Fcrm: cf mcrkeI efficiency in EMH Ihecry
- Specker: ZincI Ferccu:{SIucenI i.c: 124)
Fcrm: cf EMH
Fcrm: cf EMH
- EMH i: mcce up cf Ihree fcrm::
! eck Fcrm
! Semi-:Ircng Fcrm
! SIrcng Fcrm
eck fcrm Efficiency
eck fcrm Efficiency
- SIcck price: ref|ecI c|| infcrmcIicn ccnIcinec in Ihe hi:Icry cf
post Irccing
! nc LenefiI frcm pc:I price:
- FuIure :Icck price: ccnncI Le precicIec Ly cnc|yzing price:
frcm Ihe pc:I
- Mc:I re:ecrch :uppcrI: Ihe mcrkeI: cre efficienI in weck fcrm
%e:I: cf weck fcrm
%e:I: cf weck fcrm
Seric| ccrre|cIicn:
- heck: Ihe previcu: price:
Fun: Ie:I:
- %e:I Ihe |ike|ihccc IhcI c :erie: cf price mcvemenI: cccurrec
Ly chcnce
Fi|Ier ru|e
- / rcre|y u:ec Ie:I
Semi-:Ircng fcrm
Semi-:Ircng fcrm
- SIcck price: ref|ecI c|| puL|ic|y cvci|cL|e infcrmcIicn
- Frice: ccju:I very rcpic|y Ic new infcrmcIicn
- |c infcrmcIicn ccnncI Le u:ec Ic ecrn :upericr reIurn:.
%e:I: cf :emi-:Ircng fcrm
%e:I: cf :emi-:Ircng fcrm
EvenI SIucie:
- SIcck :p|iI:
! /vci|cL|e infcrmcIicn ccu:e: :Icck-:p|iI
- Ecrning: cnncuncemenI:
! lncrec:e: :Icck price
- /nc|y:I: reccmmenccIicn:
! lf pc:iIive, :Icck price increc:e:
SIrcng fcrm
SIrcng fcrm
- SIcck price: ref|ecI c|| re|evcnI infcrmcIicn
! Fc:I, puL|ic, cnc in:ice infcrmcIicn
- Nc LenefiI frcm cny in:icer infcrmcIicn
- Even Ihe kncw|ecge cf mcIeric|, ncn-puL|ic infcrmcIicn
ccnncI Le u:ec Ic ecrn :upericr re:u|I:.
- Mc:I :Iucie: hcve fcunc IhcI Ihe mcrkeI: cre ncI efficienI in
Ihi: :en:e.
%e:I: cf :Ircng fcrm
%e:I: cf :Ircng fcrm
- crpcrcIe ln:icer:
! ln:icer: cre :een Ic recp :upericr reIurn:
- Specic|i:I:
! cn ncI c|wcy: give Ihe ccrrecI precicIicn:
- MuIuc| Func:.
! ln mc:I yecr:, crcunc cf c|| muIuc| func: uncerperfcrm
Ihe mcrkeI.
cming Up.
Vc|iciIy cf EMH
- Specker: E:hcI 8inIcy Kcmc|{SIucenI i.c: 121)
Vc|iciIy cf EMH - 1
Vc|iciIy cf EMH
- EMH ccn u:uc||y exp|cin Ihe mcrkeI Lehcvicr
- Fc||cwing IrciI: cf Ihe mcrkeI cre per:i:IenI wiIh EMH:
Fci|ure cf cnc|y:I: cnc muIuc| func:
- Ncne ccu|c recp :upericr prcfiI: in Ihe |cng run
Lcck cf pcIIern cf :Icck price:
- Frice chcnge cf cne pericc cce: ncI cepenc cn previcu:
pericc:
Vc|iciIy cf EMH - 2
Vc|iciIy cf EMH
SecuriIy price: rcpic|y ccju:Iing Ic new infcrmcIicn
- Frice: cre :een Ic ccju:I Ic new new: :uch c::
! Divicenc/ ecrning: cnncuncemenI
! SIcck :p|iI
! Merger: cnc Ickecver:
! Expcn:icn prcjecI:
0
5
10
15
20
25
30
35
40
45
1 2 3 4 5 7 8 10 11 12 13 14 15 1 17 18 1 20
S
t
o
c
k

r
|
c
e

(
5
)
Date
LimiIcIicn: cf EMH - 1
EMH: LimiIcIicn:
- Scme evenI: in Ihe ccpiIc| mcrkeI: hcve ccnIrccicIec EMH
! %hey cre kncwn c: 'onomo||es'
- Scme freuenI|y cccurring cncmc|ie: cre:
Eccncmic LuLL|e:
- / pericc cf cLncrmc||y high :ecuriIy price
! DcI-ccm LuLL|e
LimiIcIicn: cf EMH - 2
EMH: LimiIcIicn:
c|enccr effecI
- lnc|uce: Iurn-cf-Ihe-ccy-effecI, Jcnucry effecI, weekenc
effecI eIc.
Smc|| firm effecI
- Smc|| cnc fincncic||y ri:ky firm: ccnIinucu:|y gcining higher
reIurn:
Neg|ecIec firm effecI
- cmpcnie: fc||cwec Ly fewer fincncic| cnc|y:I: prcvicing
higher reIurn:
cming Up.
Efficiency cf 8cng|cce:hi ccpiIc| mcrkeI
- Specker: Mc. Fc:e| Hc::cin{SIucenI i.c: 12)
%he Fincnce Mini:Ier Scy:.
%he Fincnce Mini:Ier Scy:.
- 8ong|odesh sfock morkef |s o sfronge morkef. Whofever l soy
effecfs |f
- Sc i: Ihe 8cng|cce:h ccpiIc| mcrkeI strong|y e|||c|ent
Efficiency cf 8cng|cce:h: cpiIc| McrkeI:- 1
8cng|cce:h: cpiIc| McrkeI:
- SIucie: :hcw IhcI iI i: in eok fcrm
Evicence cf Ihe weck fcrm efficiency
- lnve:Icr: cn|y re|y cn Iechnicc| cnc|y:i:
! DcnI uIi|ize in-cepIh cnc|y:i: |ike funccmenIc| cnc|y:i:
- FreuenI|y Luy cnc :e|| :Icck:
! DcnI mcinIcin c :IcL|e pcrIfc|ic
- /re :een Ic mcke :upericr prcfiI frcm mcrkeI mcvemenI
Efficiency cf 8cng|cce:h: cpiIc| McrkeI:- 2
8cng|cce:h: cpiIc| McrkeI:
Evicence cf Ihe weck fcrm efficiency
- pening cnc c|c:ing pericc cncmc|y
! Mc:I cf Ihe cci|y reIurn ccming cI Ihi: Iime
- Fre:ence cf new i::ue puzz|e"
! /Lncrmc| increc:e cf :Icck price cf new ccmpcnie:
- LcIe ccju:ImenI cf new infcrmcIicn
- Fe|y cn previcu: ccIc cn|y Ic c::e:: prcfiIcLi|iIy
- Mc:I :Icck: cre cevicIec frcm funccmenIc| vc|ue
cming Up.
McrkeI Efficiency cnc 8ehcvicrc| fincnce
- Specker: Nczic /hmec{SIucenI i.c: 1254)
Dce: EMH Di:ccurcge lnve:ImenI
Dce: EMH Di:ccurcge lnve:ImenI
DefiniIe|y ncIl
- EMH :IcIe: Ihe gcin cf ccnIinucu: super|or reIurn: i: impc::iL|e
! lnve:Icr: :hcu|c cpI Ic gcin Iheir expected reIurn:
! ehov|oro| ||nonce ccn Le c u:efu| Icc| here
8ehcvicrc| Fincnce
8ehcvicrc| Fincnce
- / fie|c cf :Iucy inccrpcrcIing Ihe p:ychc|cgy cf inve:Icr: inIc
fincnce Ihecrie:
- lI :eek: Ic cn:wer why inve:Icr: Icke irrcIicnc| ceci:icn:
! cn Le c guice Ic rcIicnc| inve:ImenI ceci:icn:
8ehcvicrc| Fincnce: lnve:Icr /IIiIuce - 1
lnve:Icr /IIiIuce
/IIiIuce Icwcrc: ri:k
- Lc::e: hcving mcre emcIicnc| impccI Ihcn euivc|enI gcin:
! Hc|cing cn Ic |c:ing :Icck:
8e|ief: cLcuI prcLcLi|iIy
- Feferring Ic :imi|cr :iIucIicn: Ic c::e:: fuIure cuIccme:
! /::e::ing c firm cr c fincncic| cnc|y:I
verccnficence
- Ferceiving cne:e|f c: :upericr in :ki|| cnc infcrmcIicn
! Succe::ive gcin: frcm inve:ImenI
8ehcvicrc| Fincnce: lnve:Icr /IIiIuce - 2
lnve:Icr /IIiIuce
'Herc Lehcvicr
- Ferhcp: Ihe ccu:e cf eccncmic LuLL|e:
/nchcring
- Fefu:ing Ic chcnge inve:ImenI :IrcIegy ce:piIe
cverwhe|ming infcrmcIicn
! %ime: cf exce::ive vc|cIi|iIy cf price:
lmp|iccIicn: cf lnve:Icr:
lmp|iccIicn:
Keeping c c|c:e eye cn Ihe mcrkeI
- SIcying up Ic ccIe wiIh Ihe fincncic| new:
cmLining ccIive cnc pc::ive inve:ImenI
- Hecging cnc incex func:
recIing c civer:ifiec pcrIfc|ic
- En:ure: ccn:i:IenI reIurn:
FeecLcckl
%hcnk Ycul
ny Quest|ons?

Group 3 - EMH-7.11.11

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0epartment of FInance E 8ankIng, JU Corporate FInance

EfficienI McrkeI: HypcIhe:i:

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