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Encyclopedia > Efficient market hypothesis
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In economics a financial market is a mechanism that allows people to easily buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices that reflect efficient markets. ... Download high resolution version (480x640, 110 KB)Blockade in front of NYSE. Picture taken in April 2004. ... The bond market, also known as the debit, credit, or fixed income market, is a financial market where participants buy and sell debt securities usually in the form of bonds. ... This article does not cite any references or sources. ... A Corporate bond is a bond issued by a corporation, as the name suggests. ... A government bond is a bond issued by a national government denominated in the countrys own currency. ... In the United States, a municipal bond or muni is a bond issued by a state, city or other local government, or their agencies. ... Bond valuation is the process of determining the fair price of a bond. ... To meet Wikipedias quality standards, this article or section may require cleanup. ...

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A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately. ... This article does not cite any references or sources. ... A preferred stock, also known as a preferred share or simply a preferred, is a share of stock carrying additional rights above and beyond those conferred by common stock. ... Common stock, also referred to as common shares, are, as the name implies, the most usual and commonly held form of stock in a corporation. ...

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The foreign exchange (currency or forex or FX) market exists wherever one currency is traded for another. ... The Retail Forex (Retail Currency Trading or Retail Forex or Retail FX) market is a subset of the much larger Foreign exchange market. ...

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A derivatives market is any market for a derivative security, that is a contract which specifies the right or obligation to receive or deliver future cash flows based on some future event such as the price of an independent security or the performance of an index. ... A credit derivative is a contract (derivative) to transfer the risk of the total return on a credit asset falling below an agreed level, without transfer of the underlying asset. ... Definition A hybrid security, as the name implies, is a security that combines two or more different financial instruments. ... In finance options are types of derivative contracts, including call options and put options, where the future payoffs to the buyer and seller of the contract are determined by the price of another security, such as a common stock. ... In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. ... This article does not cite any references or sources. ... This article or section is in need of attention from an expert on the subject. ...

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This article does not cite any references or sources. ... In economics a financial market is a mechanism that allows people to easily buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices that reflect efficient markets. ... There are two basic financial market participant catagories, Investor vs. ... Corporate finance is an area of finance dealing with the financial decisions corporations make and the tools and analysis used to make these decisions. ... Personal finance is the application of the principles of finance to the monetary decisions of an individual or family unit. ... Public finance (government finance) is the field of economics that deals with budgeting the revenues and expenditures of a public sector entity, usually government. ... “Banker” redirects here. ... Financial supervision is government supervision of financial institutions by regulators. ...

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In finance, the efficient market hypothesis (EMH) asserts that financial markets are "informationally efficient", or that prices on traded assets, e.g., stocks, bonds, or property, already reflect all known information and therefore are unbiased in the sense that they reflect the collective beliefs of all investors about future prospects. Professor Eugene Fama at the University of Chicago Graduate School of Business developed EMH as an academic concept of study through his published Ph.D. thesis in the early 1960s at the same school. This article does not cite any references or sources. ... Eugene F. Fama. ... The University of Chicago Graduate School of Business, also known as Chicago GSB, is one of the world’s leading business schools and the second oldest in the United States. ...


The efficient market hypothesis states that it is not possible to consistently outperform the market by using any information that the market already knows, except through luck. Information or news in the EMH is defined as anything that may affect prices that is unknowable in the present and thus appears randomly in the future.

Contents

Assumptions

Beyond the normal utility maximizing agents, the efficient market hypothesis requires that agents have rational expectations; that on average the population is correct (even if no one person is) and whenever new relevant information appears, the agents update their expectations appropriately. In economics, utility is a measure of the relative happiness or satisfaction (gratification) gained. ... Rational expectations is a theory in economics originally proposed by John F. Muth (1961) and later developed by Robert E. Lucas Jr. ...


Note that it is not required that the agents be rational (which is different from rational expectations; rational agents act coldly and achieve what they set out to do). EMH allows that when faced with new information, some investors may overreact and some may underreact. All that is required by the EMH is that investors' reactions be random and follow a normal distribution pattern so that the net effect on market prices cannot be reliably exploited to make an abnormal profit, especially when considering transaction costs (including commissions and spreads). Thus, any one person can be wrong about the market — indeed, everyone can be — but the market as a whole is always right.


There are three common forms in which the efficient market hypothesis is commonly stated — weak form efficiency, semi-strong form efficiency and strong form efficiency, each of which have different implications for how markets work.


Weak-form efficiency

  • No excess returns can be earned by using investment strategies based on historical share prices or other financial data.
  • Weak-form efficiency implies that Technical analysis techniques will not be able to consistently produce excess returns, though some forms of fundamental analysis may still provide excess returns.
  • In a weak-form efficient market current share prices are the best, unbiased, estimate of the value of the security. Theoretical in nature, weak form efficiency advocates assert that fundamental analysis can be used to identify stocks that are undervalued and overvalued. Therefore, keen investors looking for profitable companies can earn profits by researching financial statements.

Technical analysis is the study of past financial market data, primarily through the use of charts, to forecast price trends and make investment decisions. ... Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. ...

Semi-strong form efficiency

  • Share prices adjust within an arbitrarily small but finite amount of time and in an unbiased fashion to publicly available new information, so that no excess returns can be earned by trading on that information.
  • Semi-strong form efficiency implies that Fundamental analysis techniques will not be able to reliably produce excess returns.
  • To test for semi-strong form efficiency, the adjustments to previously unknown news must be of a reasonable size and must be instantaneous. To test for this, consistent upward or downward adjustments after the initial change must be looked for. If there are any such adjustments it would suggest that investors had interpreted the information in a biased fashion and hence in an inefficient manner.

Fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competitors and markets. ...

Strong-form efficiency

  • Share prices reflect all information and no one can earn excess returns.
  • If there are legal barriers to private information becoming public, as with insider trading laws, strong-form efficiency is impossible, except in the case where the laws are universally ignored. Studies on the U.S. stock market have shown that people do trade on inside information.[citation needed]
  • To test for strong form efficiency, a market needs to exist where investors cannot consistently earn excess returns over a long period of time. Even if some money managers are consistently observed to beat the market, no refutation even of strong-form efficiency follows: with tens of thousands of fund managers worldwide[citation needed], even a normal distribution of returns (as efficiency predicts) should be expected to produce a few dozen "star" performers.

Arguments concerning the validity of the hypothesis

Some observers dispute the notion that markets behave consistently with the efficient market hypothesis, especially in its stronger forms. Some economists, mathematicians and market practitioners cannot believe that man-made markets are strong-form efficient when there are prima facie reasons for inefficiency including the slow diffusion of information, the relatively great power of some market participants (e.g. financial institutions), and the existence of apparently sophisticated professional investors. The way that markets react to surprising news is perhaps the most visible flaw in the efficient market hypothesis. For example, news events such as surprise interest rate changes from central banks are not instantaneously taken account of in stock prices, but rather cause sustained movement of prices over periods from hours to months. Look up prima facie in Wiktionary, the free dictionary. ...


Another observed discrepancy between the theory and real markets is that at market extremes what fundamentalists might consider irrational behaviour is the norm: in the late stages of a bull market, the market is driven by buyers who take little notice of underlying value. Towards the end of a crash, markets go into free fall as participants extricate themselves from positions regardless of the unusually good value that their positions represent. This is indicated by the large differences in the valuation of stocks compared to fundamentals (such as forward price to earnings ratios) in bull markets compared to bear markets. A theorist might say that rational (and hence, presumably, powerful) participants should always immediately take advantage of the artificially high or artificially low prices caused by the irrational participants by taking opposing positions, but this is observably not, in general, enough to prevent bubbles and crashes developing. It may be inferred that many rational participants are aware of the irrationality of the market at extremes and are willing to allow irrational participants to drive the market as far as they will, and only take advantage of the prices when they have more than merely fundamental reasons that the market will return towards fair value. Behavioural finance explains that when entering positions market participants are not driven primarily by whether prices are cheap or expensive, but by whether they expect them to rise or fall. To ignore this can be hazardous: Alan Greenspan warned of "irrational exuberance" in the markets in 1996, but some traders who sold short new economy stocks that seemed to be greatly overpriced around this time had to accept serious losses as prices reached even more extraordinary levels. As John Maynard Keynes succinctly commented, "Markets can remain irrational longer than you can remain solvent."[citation needed] In finance, the P/E ratio of a stock (also called its earnings multiple, or simply multiple or PE) is used to measure how cheap or expensive share prices are. ... A bull market is a prolonged period of time when prices are rising in a financial market faster than their historical average. ... A bear market is a prolonged period of time when prices are falling in a financial market. ... An economic bubble occurs when speculation in a commodity causes the price to increase, thus producing more speculation. ... Black Monday (1987) on the Dow Jones Industrial Average A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market. ... Nobel Prize in Economics winner Daniel Kahneman, was an important figure in the development of behavioral finance and economics and continues to write extensively in the field. ... Alan Greenspan (born March 6, 1926) is an American economist and was Chairman of the Board of Governors of the Federal Reserve of the United States from 1987 to 2006. ... Irrational exuberance is a phrase used by Federal Reserve Board Chairman Alan Greenspan in a speech given during the stock market boom of the 1990s. ... Year 1996 (MCMXCVI) was a leap year starting on Monday (link will display full 1996 Gregorian calendar). ... In finance, short selling is selling something that one does not (yet) own. ... This article does not cite any references or sources. ...


The efficient market hypothesis was introduced in the late 1960s. Prior to that, the prevailing view was that markets were inefficient. Inefficiency was commonly believed to exist e.g. in the United States and United Kingdom stock markets. However, earlier work by Kendall (1953) suggested that changes in UK stock market prices were random. Later work by Brealey and Dryden, and also by Cunningham found that there were no significant dependences in price changes suggesting that the UK stock market was weak-form efficient. Year 1953 (MCMLIII) was a common year starting on Thursday (link will display full calendar) of the Gregorian calendar. ...


Further to this evidence that the UK stock market is weak form efficient, other studies of capital markets have pointed toward them being semi strong-form efficient. Studies by Firth (1976, 1979 and 1980) in the United Kingdom have compared the share prices existing after a takeover announcement with the bid offer. Firth found that the share prices were fully and instantaneously adjusted to their correct levels, thus concluding that the UK stock market was semi strong-form efficient. The market's ability to efficiently respond to a short term and widely publicized event such as a takeover announcement cannot necessarily be taken as indicative of a market efficient at pricing regarding more long term and amorphous factors however. Year 1976 (MCMLXXVI) was a leap year starting on Thursday (link will display full calendar) of the Gregorian calendar. ... Also: 1979 by Smashing Pumpkins. ... Year 1980 (MCMLXXX) was a leap year starting on Tuesday (link displays the 1980 Gregorian calendar). ...


Other empirical evidence in support of the EMH comes from studies showing that the return of market averages exceeds the return of actively managed mutual funds. Thus, to the extent that markets are inefficient, the benefits realized by seizing upon the inefficiencies are outweighed by the internal fund costs involved in finding them, acting upon them, advertising etc. These findings gave inspiration to the formation of passively managed index funds.[1] An index fund is a type of passively managed mutual fund that seeks to track the performance of a benchmark market index such as the S&P 500. ...


It may be that professional and other market participants who have discovered reliable trading rules or stratagems see no reason to divulge them to academic researchers. It might be that there is an information gap between the academics who study the markets and the professionals who work in them. Some observers point to seemingly inefficient features of the markets that can be exploited e.g seasonal tendencies and divergent returns to assets with various characteristics. E.g. factor analysis and studies of returns to different types of investment strategies suggest that some types of stocks may outperform the market long-term (e.g in the UK, the USA and Japan). Seasonal tendencies describes the process by which time series data follow regular patterns that correspond to particular times of the year. ...


Skeptics of EMH argue that there exists a small number of investors who have outperformed the market over long periods of time, in a way which is difficult to attribute luck, including Peter Lynch, Warren Buffett, George Soros, and Bill Miller. These investors' strategies are to a large extent based on identifying markets where prices do not accurately reflect the available information, in direct contradiction to the efficient market hypothesis which explicitly implies that no such opportunities exist. Among the skeptics is Warren Buffett who has argued that the EMH is not correct, on one occasion wryly saying "I'd be a bum on the street with a tin cup if the markets were always efficient"[citation needed] and on another saying "The professors who taught Efficient Market Theory said that someone throwing darts at the stock tables could select stock portfolio having prospects just as good as one selected by the brightest, most hard-working securities analyst. Observing correctly that the market was frequently efficient, they went on to conclude incorrectly that it was always efficient."[citation needed] Adherents to a stronger form of the EMH argue that the hypothesis does not preclude - indeed it predicts - the existence of unusually successful investors or funds occurring through chance. They also argue that presentation of anecdotal evidence of star-performers to cast doubt on the hypothesis is rife with survivorship bias. Peter Lynch (born January 19, 1944) is a successful Wall Street stock investor whose record ranks him as one of the best stock-pickers in the world. ... Warren Edward Buffett (b. ... George Soros (pronounced ) [Shorosh] (born August 12, 1930, in Budapest, Hungary, as György Schwartz) is an American financial speculator, stock investor, philanthropist, and political activist. ... Bill Miller is the CEO of Legg Mason Capital Management, a subsidiary of Legg Mason. ... Anecdotal evidence is an informal account of evidence in the form of an anecdote, or hearsay. ... Survivorship bias is the tendency for failed companies to be excluded from performance studies due to the fact that they no longer exist. ...


However, importantly, in 1962 Warren Buffett wrote: "I present this data to indicate the Dow as an investment competitor is no pushover, and the great bulk of investment funds in the country are going to have difficulty in bettering, or... even matching, its performance. Our portfolio is very different from that of the Dow. Our method of operation is substantially different from that of mutual funds." [2] Warren Edward Buffett (b. ...


The EMH and popular culture

Despite the best efforts of EMH proponents such as Burton Malkiel, whose book A Random Walk Down Wall Street (ISBN 0-393-32535-0) achieved best-seller status, the EMH has not caught the public's imagination. Popular books and articles promoting various forms of stock-picking, such as the books by popular CNBC commentator Jim Cramer and former Fidelity Investments fund manager Peter Lynch, have continued to press the more appealing notion that investors can "beat the market." The theme was further explored in the recent The Little Book That Beats The Market (ISBN 0-471-73306-7) by Joel Greenblatt. Burton Gordon Malkiel (born August 28, 1932) is an American economist and writer, most famous for his classic finance book A Random Walk Down Wall Street (now in its 8th edition, 2003). ... To meet Wikipedias quality standards, this article or section may require cleanup. ... Active management (also called active investing) refers to a portfolio management strategy where the manager makes specific investments with the goal of outperforming a benchmark index. ... CNBC (an abbrevation for the Consumer News and Business Channel, its official name until 1991) is a group of cable and satellite television Business news channels from the U.S., owned and operated by NBC Universal. ... James J. Jim Cramer (b. ... Fidelity Investments is a group of privately held companies in the financial services industry. ... Peter Lynch (born January 19, 1944) is a successful Wall Street stock investor whose record ranks him as one of the best stock-pickers in the world. ... Joel Greenblatt (born 1958 in Great Neck, New York) is a hedge fund manager, value investing guru, and adjunct professor at the Columbia University Graduate School of Business. ...


One notable exception to this trend is the recent book Wall Street Versus America (ISBN 1-59184-094-5), by investigative journalist Gary Weiss. In this caustic attack on Wall Street practices, Weiss argues in favor of the EMH and against stock-picking as an investor self-defense mechanism. Gary Weiss is an award-winning investigative journalist and author of Born to Steal and Both books are harshly critical humorous examinations of the ethics and morality of Wall Street, often tinged with humor. ...


EMH is commonly rejected by the general public due to a misconception concerning its meaning. Many believe that EMH says that a security's price is a correct representation of the value of that business, as calculated by what the business's future returns will actually be. In other words, they believe that EMH says a stock's price correctly predicts the underlying company's future results. Since stock prices clearly do not reflect company future results in many cases, many people reject EMH as clearly wrong.


However, EMH makes no such statement. Rather, it says that a stock's price represents an aggregation of the probabilities of all future outcomes for the company, based on the best information available at the time. Whether that information turns out to have been correct is not something required by EMH. Put another way, EMH does not require a stock's price to reflect a company's future performance, just the best possible estimate of that performance that can be made with publicly available information. That estimate may still be grossly wrong without violating EMH.


An alternative theory: Behavioral Finance

Opponents of the EMH sometimes cite examples of market movements that seem inexplicable in terms of conventional theories of stock price determination, for example the stock market crash of October 1987 where most stock exchanges crashed at the same time. It is virtually impossible to explain the scale of those market falls by reference to any news event at the time. The explanation may lie either in the mechanics of the exchanges (e.g. no safety nets to discontinue trading initiated by program sellers) or the peculiarities of human nature. DJIA (19 July 1987 through 19 January 1988) FTSE 100 Index (19 July 1987 through 19 January 1988) Black Monday is the name given to Monday, October 19, 1987, when the Dow Jones Industrial Average (DJIA) fell dramatically, and on which similar enormous drops occurred across the world. ...


Behavioural psychology approaches to stock market trading are among some of the more promising alternatives to EMH (and some investment strategies seek to exploit exactly such inefficiencies). A growing field of research called behavioral finance studies how cognitive or emotional biases, which are individual or collective, create anomalies in market prices and returns that may be inexplicable via EMH alone. Economics Nobel Laureate Daniel Kahneman, was an important figure in the development of behavioral finance and economics and continues to write extensively in the field. ...


Ironically, the behaviorial finance programme can also be used to tangentially support the EMH - or rather it can explain the skepticism drawn by EMH - in that it helps to explain the human tendency to find and exploit patterns in data even where none exist. Some relevant examples of the Cognitive biases highlighted by the programme are: the Hindsight Bias; the Clustering illusion; the Overconfidence effect; the Observer-expectancy effect; the Gambler's fallacy; and the Illusion of control. This article or section does not cite its references or sources. ... Hindsight bias, sometimes called the I-knew-it-all-along effect, is the inclination to see events that have occurred as more predictable than they in fact were before they took place. ... The clustering illusion is the natural human tendency to see patterns where actually none exist. ... Many people tend to be overconfident. ... The observer-expectancy effect, in science, is a cognitive bias that occurs in science when a researcher expects a given result and therefore unconsciously manipulates an experiment or misinterprets data in order to find it. ... The gamblers fallacy is a logical fallacy which encompasses any of the following misconceptions: A random event is more likely to occur because it has not happened for a period of time; A random event is less likely to occur because it has not happened for a period of... The illusion of control is the tendency for human beings to believe they can control or at least influence outcomes which they clearly cannot. ...


See also

In economics and finance, arbitrage is the practice of taking advantage of a price differential between two or more markets: a combination of matching deals are struck that capitalize upon the imbalance, the profit being the difference between the market prices. ... Economics Nobel Laureate Daniel Kahneman, was an important figure in the development of behavioral finance and economics and continues to write extensively in the field. ... Eugene F. Fama. ... This article does not cite any references or sources. ... Insider trading is the trading of a corporations stock or other securities (e. ... A market anomaly (or inefficiency) is a price distortion on a financial market. ... Microeconomics is a branch of Economics that studies how individuals, households, and firms make decisions to allocate limited resources,[1] typically in markets where goods or services are being bought and sold. ... The random walk hypothesis is a financial theory, close to the efficient market hypothesis, stating that market prices evolve according to a random walk and thus cannot be predicted. ... Paul Anthony Samuelson Paul A. Samuelson (born May 15, 1915, in Gary, Indiana) is an American economist known for his work in many fields of economics. ... Technical analysis is the study of past financial market data, primarily through the use of charts, to forecast price trends and make investment decisions. ... In economics, a market is transparent if much is known by many about: what products and/or services are available at what price and where. ...

References

  1. ^ Bogle, John C. (2004-04-13). As The Index Fund Moves from Heresy to Dogma . . . What More Do We Need To Know?. The Gary M. Brinson Distinguished Lecture. Bogle Financial Center. Retrieved on 2007-02-20.
  2. ^ Template:January 24, 1962 Buffett Partnership Letter, page 4
  • Burton G. Malkiel (1987). "efficient market hypothesis," The New Palgrave: A Dictionary of Economics, v. 2, pp. 120-23.
  • Paul Samuelson, "Proof That Properly Anticipated Prices Fluctuate Randomly." Industrial Management Review, Vol. 6, No. 2, pp. 41-49. Reproduced as Chapter 198 in Samuelson, Collected Scientific Papers, Volume III, Cambridge, M.I.T. Press, 1972.

John C. (Jack) Bogle (b. ... shelby was here 2004 (MMIV) was a leap year starting on Thursday of the Gregorian calendar. ... April 13 is the 103rd day of the year (104th in leap years) in the Gregorian calendar. ... Year 2007 (MMVII) is the current year, a common year starting on Monday of the Gregorian calendar and the AD/CE era. ... February 20 is the 51st day of the year in the Gregorian calendar. ...

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This is a list of over 200 articles on marketing topics. ... This is a list of articles on general management and strategic management topics. ... This aims to be a complete list of the articles on economics. ... Following is a list of accounting topics. ... What follows is a list of over 250 Wikipedia articles on finance topics. ... This is an alphabetical list of notable economists. ...

Investment management

Collective investment schemes:  Common contractual funds • Fonds commun de placements • Investment trusts • Hedge funds • Unit trusts • Mutual funds • ICVC • SICAV • Unit Investment Trusts • Exchange-traded funds • Offshore fund • Unitised insurance fund Investment management is the professional management of various securities (shares, bonds etc) assets (e. ... Funds financial information A collective investment scheme is a way of investing money with a large number of people to participate in a wider range of investments that may not be feasible for an individual investor hence many investors share the costs of doing so. ... The European Communities UCITS Regulations, 2003 (the “Regulations”) introduced a new collective investment scheme structure in Ireland called a common contractual fund (or “CCF”). The CCF is an unincorporated body established by a management company under which the participants by contractual arrangements participate and share in the property of the... The name translates to Pooled funds, and are similar to open-ended mutual funds in the United States. ... Investment trusts are companies that invest in the shares of other companies for the purpose of acting as a collective investment scheme. ... A hedge fund is an investment fund charging a performance fee and typically open to only a limited range of investors. ... A unit trust is a form of collective investment constituted under a trust deed. ... A mutual fund is a form of collective investments that pools money from many investors and invests their money in stocks, bonds, short-term money market instruments, and/or other securities. ... An ICVC or Investment Company with Variable Capital is a type of open ended collective investment formed as a corporation under the Open-Ended Investment Companies Regulations. ... A SICAV is an open-ended collective investment scheme common in Western Europe especially Luxembourg and France. ... Note: the Unit Trust (UT) is a separate mainly UK fund type. ... Exchange-traded funds (or ETFs) are open ended mutual funds that can be traded at any time throughout the course of the day. ... An offshore fund is a collective investment scheme domiciled in a tax-haven located on an island juristiction or another low tax financial centre considered offshore, for example British Virgin Islands, Luxembourg or Dublin. ... Unitised insurance funds are a form of collective investment offered through life assurance policies. ...


Styles and theory:  Active management • Passive management • Index fund • Efficient market hypothesis • Socially responsible investing • Net asset value Active management (also called active investing) refers to a portfolio management strategy where the manager makes specific investments with the goal of outperforming a benchmark index. ... Passive management (also called passive investing) is a financial strategy in which a fund manager makes as few portfolio decisions as possible, in order to minimize transaction costs, including the incidence of capital gains tax. ... An index fund or index tracker is a collective investment scheme that aims to replicate the movements of an index of a specific financial market, or a set of rules of ownership that are held constant, regardless of market conditions. ... This article or section does not cite any references or sources. ... The Net Asset Value or NAV is a term used to describe the value of an entitys assets less the value of its liabilities. ...


Related Topics: List of asset management firms • Umbrella fund • Fund of funds • UCITS This is a list of corporations that provide financial asset management. ... An umbrella fund (sometimes called a fund of funds) is a mutual fund containing several sub-funds, each of which uses a different investment strategy. ... This article is in need of attention. ... Undertakings for Collective Investments in Transferable Securities (or UCITS, pronounced yoo-sits) are a set of European Union regulations that aim to allow collective investment schemes to operate freely throughout the EU on the basis of a single authorisation from one member state. ...




Stock Market v d
Types of Stocks
Stock | Common stock | Preferred stock | Outstanding stock | Treasury stock
Trading Stock
Participants: Market maker
Exchanges: Stock exchange | List of stock exchanges | New York Stock Exchange
SEAQ | NASDAQ | American Stock Exchange | London Stock Exchange
Frankfurt Stock Exchange | Euronext | Tokyo Stock Exchange
Stock Valuation
Trading Theories: Dow Theory | Elliott Wave Theory | Fundamental analysis | Technical analysis
Mark Twain effect | January effect | Efficient market hypothesis
Stock Pricing: Dividend yield | Gordon model | Income per share | Book value | Earnings yield | Beta coefficient
Ratios: Financial ratio | P/CF ratio | PE ratio | PEG ratio | Price/sales ratio | P/B ratio
Stock Related Terms
Dividend | Stock split | Growth stock | Investment | Speculation | Trade | Day trading

  Results from FactBites:
 
Efficient Market Hypothesis by Alvin Han (2549 words)
Efficient market hypothesis is the idea that information is quickly and efficiently incorporated into asset prices at any point in time, so that old information cannot be used to foretell future price movements.
However semi strong form market efficiency suggests that fundamentals analysis cannot be used to outperform the market.
In the first study on weak form efficiency, the researchers have strong evidence to prove their conclusion as 4 statistical tests are being used to reinforce the result.
efficient market hypothesis: Information from Answers.com (2359 words)
The efficient market hypothesis implies that it is not possible to consistently outperform the market — appropriately adjusted for risk — by using any information that the market already knows, except through luck or obtaining and trading on inside information.
Another observed discrepancy between the theory and real markets is that at market extremes what fundamentalists might consider irrational behaviour is the norm: in the late stages of a bull market, the market is driven by buyers who take little notice of underlying value.
The market's ability to efficiently respond to a short term and widely publicized event such as a takeover announcement cannot necessarily be taken as indicative of a market efficient at pricing regarding more long term and amorphous factors however.
  More results at FactBites »

 
 

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