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| reasons to look at market efficiency |
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Implications for business and corporate finance
Implications for investment |
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| can determine is stocks are under or overvalues |
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| only info not available to public can be benefitial in determining the value |
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| no difference between professional and average investors. pure market information. no way to determine value |
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| using prices and volume information to predict future prices (weak) |
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| using economic and accounting information to predict stock prices (semi-strong) |
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| Aggregate returns are higher with higher dividend ratios |
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| Earnings yield can predict market returns |
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| Bond spreads can predict market returns |
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Anomalies
P/E Effect
Small Firm Effect (January Effect)
Neglected Firm Effect and Liquidity Effects
Book-to-Market Ratios
Post-Earnings Announcement Price Drift |
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Definition
Inside Information
The ability of insiders to trade profitability in their own stock has been documented in studies by Jaffe, Seyhun, Givoly, and Palmon
SEC requires all insiders to register their trading activity |
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Definition
Returns over the Short Horizon
Momentum
Returns over Long Horizons |
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