英文版 finance Ch13s.ppt

Risk, Return and Market Efficiency For 9.220 Chapter 13 Outline Introduction Types of Efficiency Informational Efficiency Forms of Informational Efficiency and Empirical Evidence Implications of Informational Efficiency on Security Price Changes Implications for Investors and Managers Summary and Conclusions Introduction People have various views of how efficient are financial markets – this is a hotly debated topic, especially between practitioners and researchers. Some argue that since prices change so much and so quickly, the markets are an irrational crap-shoot that is not efficient at all. They conclude that only with professional advice can an investor make wise investment decisions. Others argue that markets are somewhat efficient and that some professional advice is of low or even negative value. We will look at specific classifications of market efficiency and review the scientific evidence before making our judgments. Then we will consider the implications of our findings for security prices, investors, and managers. Types of Efficiency Operational Efficiency – the processes of buying and selling securities is fast, accurate, and of low cost. Mechanisms for transactions are not wasteful. Informational Efficiency – security prices reflect relevant information (we’ll come back to this in detail). Allocational Efficiency – capital (money) is allocated to those users who can use it most efficiently. This depends on operational efficiency (so there is an easy flows of funds) and informational efficiency (so people know what is going on and what investments deserve their cash). Informational Efficiency Concept: Info is cheaply and widely available to investors and ALL RELEVANT INFO AVAILABLE IS ALREADY REFLECTED IN SECURITY PRICES. Implication if true: If you know a piece of good info and you buy a stock because of it, you cannot expect to make an abnormally high return. Why? Because that info has already been reflected in the stock’s price. If it was