04_Efficient securities markets.pptVIP

CONTEST The winner of this contest will receive a valuable prize (ties are broken by lottery). Rule: Pick a number (an integer) between 0 and 100, inclusive. The person whose number is closest to 2/3 of the average number for the class is the winner. We’ll check the results next week. Name: My pick is: * * Efficient Securities Markets Tang Song tangsong@ 6590 4842 School of Accountancy Shanghai University of Finance and Economics * * References of EM R. Ball, “The development, accomplishments and limitations of theory of stock market efficiency”, Managerial Finance, 20, 1994, 3. Fama, E.F., “ Efficient Capital Markets (II)”, Journal of Finance 46, 1991, 1575-1617 Fama, E.F., “Market efficiency, long-term returns and behavioral finance”, Journal of Financial Economics 49, 1998, 283-306 * Development of EM First use of the term ‘ efficient market’ Fama, E.F. “Random walk in stock market price,” Financial Analysis Journal, September and October (1965). Random walk hypothesis Fama, E.F. “Efficient Capital Markets: A Review of Theory and Empirical work,” Journal of Finance 25 (1970). Event study (Fama, Fisher, Jensen and Roll, FFJR, 1969) Skepticism among academic field Benjamin Friedman(1993): EM is a statement of faith, not scientific research * Eugene F. Fama (1939/2/14-) Who is Fama? An American economist Known for his work on portfolio theory and asset pricing Robert R. McCormick Distinguished Service Professor of Finance at the University of Chicago Booth School of Business Home page: /eugene.fama/index.htm * Definition of EM Fama’s definition (1970) A securities market is efficient if security prices “fully reflect” the information available. Jensen’s definition (1978) If we can’t earn abnormal return by trading base on a set of information, then we can say the market is efficient. Investors can only earn risk-adjusted rate of return. The abnormal return based on trading strategies are zero. * Three Forms of EM Weak Form A