HIPOTESIS DE MERCADOS

EFICIENTES

Unidad 1 – Presentación 1
 Themes

• Introduction
• The market efficiency concept

• Market Efficiency Clasification

• Market anomalies
• Behavioral finance
 Introduction

Market efficiency concerns the extent to which market prices incorporate

available information. 
 Introduction

• Governments and market regulators also care about the extent to which
market prices incorporate information.

• Efficient markets imply informative prices

• If a company price doesn´t include all the information >>> Don´t receive funds
• If a company price are informative >>> Help to find scarce resources and funds
available for investments.

>>> Informative prices promote economic growth

 The market efficiency concept
• An informationally efficient market (an efficient market) is a market
in which asset prices reflect new information quickly and rationally.
• An efficient market is thus a market in which asset prices reflect all past
and present information.
• Fama (1976): “An efficient capital market is a market that is efficient in
processing information”
• As financial markets are generally not considered being either
completely efficient or inefficient, but rather falling within a range
between the two extremes.
 The market efficiency concept
• Investment managers and analysts are interested in market efficiency
because the extent to which a market is efficient affects how many
profitable trading opportunities (market inefficiencies) exist.

En un mercado eficiente, es difícil encontrar valores con precios incorrectos

No se pueden obtener rendimientos superiores ajustados al riesgo
Siga una estrategia de inversión pasiva que implique costos más bajos

En un mercado ineficiente, es difícil encontrar valores con precios incorrectos

LA negociación de estos activos permite obtener rendimientos superiores ajustados al riesgo
Siga una estrategia de inversión activa.

• Passive and Active Strategy

 The market efficiency concept

• Time to react: But what is the time frame of “quickly”?

– “…the basic idea is that it is sufficiently swift to make it impossible to
consistently earn abnormal profits” Chordia (2005)

.
• Information: “unexpected or surprised

• Process to incorporate information:

– 1) new information 2) Revise expectations 3) incorporate in asset price
through trades in asset
.
.
 The market efficiency concept: Market value
and intrinsic value

Discrepancies between market price and intrinsic value are the basis for profitable active
investment.
.
 The market efficiency concept: Factors
affecting market efficiency
• Assets in an efficient market should “fully reflect” all information.
• Market efficiency should be viewed as falling on a continuum between extremes of
completely efficient.

FACTORS:
.

1. Market participants:
• Large number of investors and analysts >>> Mispricing disappear quickly.
• Lack of trading activity >> inefficiency >>> Ex: China
 The market efficiency concept: Factors
affecting market efficiency
FACTORS:

2. Information availability and financial disclosure:

• Largest markets >>> information about trading activity and trading companies is
available. >>> quite efficient

• Smaller security markets >>> Lack of information

• Differences for type of markets: OTC markets

• Critical for integrity of markets: Treating all market participants fairly:

• All investors have access to the information necessary to value securities that
trade in the market
 The market efficiency concept: Factors
affecting market efficiency
Example SEC:

.
 The market efficiency concept: Factors
affecting market efficiency
FACTORS:

3. Limits to trading:

• Arbitrage: Set of transactions that produces riskless profits >>> contributes to

.
market efficiency

Example: if an asset is traded in two markets but at different prices, the

actions of buying the asset in the market in which it is underpriced and selling the
asset in the market in which it is overpriced will eventually bring these two prices
together

• Operational inefficiency is a limitation to arbitrage: high trade costs, difficult in

executing trades, lack of transparency.

• Short selling >>> promote market efficiency???

 The market efficiency concept: Transaction
Costs and Information-Acquisition Costs
Costs incurred by traders in identifying and exploiting possible market inefficiencies >>>
Affect market efficiency

• Transaction costs: Are efficient if it’s within the bounds of transaction cost

For example, consider . a violation of the principle that two identical assets should sell for the same price in
different markets. Such a violation can be considered to be a rather simple possible exception to market
efficiency because prices appear to be inconsistently processing information. To exploit the violation, a trader
could arbitrage by simultaneously shorting the asset in the higher-price market and buying the asset in the
lower-price market. If the price discrepancy between the two markets is smaller than the transaction costs
involved in the arbitrage for the lowest cost traders, the arbitrage will not occur, and both prices are in effect
efficient within the bounds of arbitrage. These bounds of arbitrage are relatively narrow in highly liquid markets,
such as the market for US Treasury bills, but could be wide in illiquid markets.
 The market efficiency concept: Transaction
Costs and Information-Acquisition Costs
Costs incurred by traders in identifying and exploiting possible market inefficiencies >>>
Affect market efficiency

• Information-Acquisition Costs: Traders place trades based on the analysis of new

information >>> key role in price adjusting
.
• Classic view: active investors incur information acquisition costs but that money is wasted because
prices already reflect all relevant information >>> If investors spend money in information it is
inefficient.

• Prices must offer a return to information acquisition; in equilibrium, if markets are efficient, returns net
of such expenses are just fair returns for the risk incurred. (Grossman and Stiglitz, 1980)

• Modern perspective: A market is inneficient if after deducting such costs, active investing can earn
superior returns.