Efficient Markets

Chapter 13: 6, 8, 13, 18, 23

I. Efficient Market Hypothesis

Weak form (random walk): Prices reflect past prices; chartism

(technical analysis) is useless).

Semistrong form: Prices reflect all public information; most financial

analysis is useless.

Strong form: Prices reflect all that is knowable; nobody consistently

makes superior profits.

Testing the efficient market hypothesis

Stock splits
January Effect

Financing Implications
Choice of accounting methods
Timing of securities sales
Price pressure from sale of securities

Investment banking - 1