GitmanJoeh 238702 Im09

Topics: Technical analysis, Dow Jones Industrial Average, Fundamental analysis Pages: 19 (5680 words) Published: December 9, 2014
Chapter 9
Market Price Behavior
.1  Outline
Learning Goals
I.Technical Analysis
A)Principles of Market Analysis
B)Using Technical Analysis
C)Measuring the Market
1.The Big Picture
a.Dow theory
b.Trading actions
c.Confidence index
2.Technical Conditions Within the Market
a. Market volume
b.Breadth of the market
c.Short interest
d.Odd-lot trading
3.Trading Rules and Measures
a. Advance-Decline line
b.New highs-New lows
c.The Arms index
d.Mutual fund cash ratio
e.On balance volume
f. Investment newsletter sentiment index
4.Charting
a. Bar charts
b.Point-and-figure charts
c.Chart formations
d.Moving averages
Concepts in Review
II.Random Walks and Efficient Markets
A)A Brief Historical Overview
1.Random Walks
2.Efficient Markets
B)Why Should Markets Be Efficient?
C)Levels of Market Efficiency
1.Weak Form
2.Semi-Strong Form
3.Strong Form
4.Market Anomalies
a. Calendar effects
b.Small firm effect
c.Earnings announcements
b.P/E effect
D)Possible Implications
1.Implications for Technical Analysis
2.Implications for Fundamental Analysis
E)So Who Is Right?
Concepts in Review
III.Behavioral Finance: A Challenge to The Efficient Markets Hypothesis A)Investor Behavior and Security Prices
1.Overconfidence
2.Biased-Self Attribution
3.Loss Aversion
4.Representativeness
5.Narrow Framing
6.Belief Perseverance
B)Behavioral Finance at Work in the Markets
1.Stock Return Predictability
2.Investor Behavior
3.Analyst Behavior
C)Implications for Security Analysis
D)Your Behavior as an Investor: It Does Matter
Concepts in Review
Summary
Putting Your Investment Know-How to the Test
Discussion Questions
Problems
Case Problems
9.1Rhett Runs Some Technical Measures on a Stock
9.2Deb Takes Measure of the Market
Excel with Spreadsheets
Trading Online with OTIS
.2  Key Concepts
1.Technical analysis, its role in its role in the security analysis and stock selection process, and the various measures of market performance that make up technical analysis. 2.The idea of random walks and efficient markets, particularly with regard to how the efficient market concept explains why prices move randomly, and to caution the investor not to expect to consistently outperform the market. 3.Weak, semi-strong, and strong versions of the efficient market hypothesis and market anomalies. 4.Behavioral finance as a challenge to market efficiency and how psychological factors can effect investors’ decisions. .3  Overview

The accuracy of stock market prices is considered in this chapter. Analyzing the various forces at work in the stock market is known as technical analysis. Information is divided into three categories—price and volume, fundamental data, and information known only to insiders. Market efficiency is examined at each level, along with some pieces of information that seem to provide returns in excess of what would be expected based solely on the basis of risk. Emotions and other subjective factors play a role in investment decisions. Hence, this chapter includes information on the new area of behavioral finance, so that readers can appreciate the ongoing debate between behaviorists and supports of the EMH 1.One set of technical indicators provides insight to general stock market conditions. Dow theory, trading action, and Confidence Index measures are presented. 2.Another technical analysis approach is that of measuring variables that drive market behavior. Technical indicators such as market volume, breadth of the market, short interest, odd–lot trading, and relative price levels should are covered. 3.Technical analysts develop trading rules based on mathematical equations and measures as a way to assess market conditions. Among the most widely used technical indicators are the advance-decline line, new highs-new lows, Arms Index, mutual fund cash ratio, on balance volume, and investment newsletter sentiment index. It is...
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