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Understanding Efficient Market Hypothesis: Implications for Portfolio Management

Explore the Efficient Market Hypothesis, types of stock analysis, implications for active management, and empirical tests of market efficiency. Learn about anomalies in security prices and mutual fund performance.

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Understanding Efficient Market Hypothesis: Implications for Portfolio Management

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Presentation Transcript

  1. Chapter9 The Efficient Market Hypothesis

  2. Efficient Market Hypothesis (EMH) • Do security prices reflect information ? • Why look at market efficiency

  3. Random Walk and the EMH • Random Walk - stock prices are random

  4. Random Walk with Positive Trend Security Prices Time

  5. Random Price Changes • Why are price changes random?

  6. EMH and Competition

  7. Forms of the EMH • Weak • Semi-strong • Strong

  8. Types of Stock Analysis • Technical Analysis – • Fundamental Analysis -

  9. Implications of Efficiency for Active or Passive Management

  10. Market Efficiency and Portfolio Management

  11. Empirical Tests of Market Efficiency

  12. How Tests Are Structured 1. Examine prices and returns over time

  13. Returns Surrounding the Event -t 0 +t

  14. How Tests Are Structured (cont.) 2. Returns are adjusted to determine if they are abnormal -t 0 +t

  15. Issues in Examining the Results

  16. What Does the Evidence Show?

  17. Anomalies

  18. Mutual Fund and Professional Manager Performance

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