WEEKG

What did do ?
we
today

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1

Asset-pricing anomalies

A short excel exercise with events

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2
working

Efficient Market
Hypothesis < prices move
unpredictably (randomly) . Stock prices are at their fair level and
already reflecting all available "predictable" information .

* Stock prices forecasted

immediately reflect
any "good news" .

Cumulative abnormal returns -

takeover attemps

New info is
quickly "absorbed" into stock prices a rapid adjustment = efficient market

news" take
"Negative longer to readjust .

Event studies (firm specific ones)

Asses the impact of an event on a firm's stock price . Abnormal returns due to an event = actual returns expected returns (the benchmark return

ei(t) = ri(t) -

[xi + Birm(t)]

of information make stock to react before the actual announcement date ! Abnormal returns is not good indicator of total impact of the event
Leakages price ~ a

7 Better : Cumulative Abnormal Return (CAR) = Sum of all the abnormal returns over the period of interest

Versions of the Efficient Market

Hypothesis

WEAK FORM : historical information

SEMI-STRONG FORM : historical information +

publicly available information

STRONG-FORM
company insiders
all information the available for
:
including one
only

Types of stock
analysis Bubbles
>
prices differ from intrinsic values (market inneficiency)

. Technical
1
analysis Stock price US Market index 11 market
memory

Use historical data to predict future prices (believe markets aren't efficient)

2
. Fundamental Analysis · Fair prices US Actual Stock prices (over or underevaluation

Use economic and information to predict stock

accounting prices

firm
Semistrong efficiency

Active
management or passive management