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Seminar 08

Seminar 08

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Published by api-3695734
Seminar 08 notes.
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Market Efficiency.
Seminar 08 notes.
\
Market Efficiency.

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Published by: api-3695734 on Oct 19, 2008
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03/18/2014

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BUSINESS FINANCE/
FINANCIAL MARKETS & INSTITUTIONS
[B Sc (Hons) in Management]
SEMINAR 8
S 8
Market Efficiency
1. Essence of EMH
\u2022
Refers to Information Processing Efficiency
\u2022
If market is efficient, new information is reflected in stock
prices without delay,
\u2022
security prices should always fully reflect the available
information
\u2022
you cannot \u201cbeat the market\u201d (earn abnormal returns)
consistently
\u2022

If the information sips through slowly, then some
investors are profiteering at the expense of the rest of the
market

Market Efficiency
1. Assumptions
\u2022
Investors are rational
\u2022

Even if investors are not rational, their trades are still
random, ie, they will cancel each other without affecting
prices

\u2022

If their trades are not random, they will be met by arbitrageurs, which will eliminate the influence of irrational investors

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