财务会计理论Efficient Securities Markets
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=> Triggered EMH studies in the accounting field in 1960s
4
EMH: Background (3)
• Fama, Eugene (1939- )
– Father of EMH
• 1965, “Random walks in stock market prices”
9
2. Fully or Partially Informative?
• Fully Informative (a logical inconsistency)
– If market is fully informative
=> New information will be quickly reflected in stock price
– Stock price movements are unpredictable and follow a random walk
• 1969, “The adjustment of stock prices to new information”
– Stock prices respond to new information
Investors have no incentive to gather new information, since cannot beat the market anyway
Accounting information is useless
• Under what scenario would investors have chances to beat market?
2. In contrast to weak form of EMH
–New information is quickly absorbed/reflected in price
• Assume investors are rational
7
Characteristics of EMH
1. How do price fully reflect all available information?
Semi-strong form is believed to be the form that is closest to real capital market behaviors, and is the one used in class if not otherwise mentioned
6
– When market is not fully informative 10
2. Fully or Partially Informative?
• Partially informative
– Market is partially informative when
• There exist noise traders
• Different investors react to the same information differently
• In such case, how could market is able to reflect all information?
– Market reflects to information in a way of “cancelled-out”, “on average” mode
Semi-strong Form of EMH
• Price fully reflect public information
=>
1. In contrast to strong form of EMH
–Private (insider) information will gain abnormal return –This is NOT in conflict with semi-strong format
– Price fully reflect public and private information
• Semi-strong form
– Price fully reflect public information
• Weak form
– Price fully reflect historical (past) information (i.e. no reaction to new information)
• Differences cancelled out when consensus is reached
– Consensus forecast always outperforms individual forecasts. Why?
– Assume investors are independent and unbiased
• 1970, “Efficient capital markets: a review of theory and empirical work”
– Proposed three forms of efficiency
5
Three Forms of EMH (Fama, 1970)
• Strong form
2. Fully or partially informative? 3. Information asymmetry and estimation
risk
8
1. How Do Prices Fully Reflect
All Available Information?
• There exist different information
Chapter 4
Efficient Securities Markets
1Βιβλιοθήκη Baidu
EMH: Background (2)
• Major development took place in other disciplines
– Information economics – Finance – Behavior science: Game Theory, etc.
4
EMH: Background (3)
• Fama, Eugene (1939- )
– Father of EMH
• 1965, “Random walks in stock market prices”
9
2. Fully or Partially Informative?
• Fully Informative (a logical inconsistency)
– If market is fully informative
=> New information will be quickly reflected in stock price
– Stock price movements are unpredictable and follow a random walk
• 1969, “The adjustment of stock prices to new information”
– Stock prices respond to new information
Investors have no incentive to gather new information, since cannot beat the market anyway
Accounting information is useless
• Under what scenario would investors have chances to beat market?
2. In contrast to weak form of EMH
–New information is quickly absorbed/reflected in price
• Assume investors are rational
7
Characteristics of EMH
1. How do price fully reflect all available information?
Semi-strong form is believed to be the form that is closest to real capital market behaviors, and is the one used in class if not otherwise mentioned
6
– When market is not fully informative 10
2. Fully or Partially Informative?
• Partially informative
– Market is partially informative when
• There exist noise traders
• Different investors react to the same information differently
• In such case, how could market is able to reflect all information?
– Market reflects to information in a way of “cancelled-out”, “on average” mode
Semi-strong Form of EMH
• Price fully reflect public information
=>
1. In contrast to strong form of EMH
–Private (insider) information will gain abnormal return –This is NOT in conflict with semi-strong format
– Price fully reflect public and private information
• Semi-strong form
– Price fully reflect public information
• Weak form
– Price fully reflect historical (past) information (i.e. no reaction to new information)
• Differences cancelled out when consensus is reached
– Consensus forecast always outperforms individual forecasts. Why?
– Assume investors are independent and unbiased
• 1970, “Efficient capital markets: a review of theory and empirical work”
– Proposed three forms of efficiency
5
Three Forms of EMH (Fama, 1970)
• Strong form
2. Fully or partially informative? 3. Information asymmetry and estimation
risk
8
1. How Do Prices Fully Reflect
All Available Information?
• There exist different information
Chapter 4
Efficient Securities Markets
1Βιβλιοθήκη Baidu
EMH: Background (2)
• Major development took place in other disciplines
– Information economics – Finance – Behavior science: Game Theory, etc.