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EMH, TECHNICAL ANALYSIS AND FUNDAMENTAL ANALYSIS: IMPLICATIONS TO INVESTMENT STRATEGIES

EMH, TECHNICAL ANALYSIS AND FUNDAMENTAL ANALYSIS: IMPLICATIONS TO INVESTMENT STRATEGIES. EMH Weak form Semi strong Strong form TECHNICAL ANALYSIS FUNDAMENTAL ANALYSIS. Definition. EMH: measure speed, magnitude and direction of price sensitive information being reflected in current prices.

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EMH, TECHNICAL ANALYSIS AND FUNDAMENTAL ANALYSIS: IMPLICATIONS TO INVESTMENT STRATEGIES

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  1. EMH, TECHNICAL ANALYSIS AND FUNDAMENTAL ANALYSIS: IMPLICATIONS TO INVESTMENT STRATEGIES • EMH • Weak form • Semi strong • Strong form • TECHNICAL ANALYSIS • FUNDAMENTAL ANALYSIS

  2. Definition • EMH: measure speed, magnitude and direction of price sensitive information being reflected in current prices. • Technical Analysis: the use of past information to predict future prices • Fundamental Analysis: use valuation principles to identify under/over value assets and using fundamental variables to predict future prices

  3. Implications of EMH • Past information is of no value • If mispricing occurs or market is inefficient, it will not last very long • By virtue of uncovering inefficiencies, we are moving the market towards efficiency.

  4. Evidence against EMH • January Effect • Weekend effect • Size Effect • P/E Effect • Price to Book Value Effect • Others e.g Behavioural finance

  5. FUNDAMENTAL ANALYSIS • TOP DOWN VS BOTTOM UP • Economic environment • Industry/Sector Analysis • Company analysis • ASSET ALLOCATION VS SECURITY ANALYSIS • COMPANY ANALYSIS • FSA • Risk Analysis • Valuation Models

  6. TECHNCAL ANALYSIS • Underlying assumptions • History repeat by itself • SS and DD interaction • Trend formation and Trend persistance • T.A Indicators • Moving average (MA) • Charts • Support (leads to DD) and Resistance (leads to SS) Levels.

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