Appendix to Chapter 7 Evidence on the Efficient Market Hypothesis Early evidence on the efficient market hypothesis was quite favorable to it. In recent years‚ however‚ deeper analysis of the evidence suggests that the hypothesis may not always be entirely correct. Let’s first look at the earlier evidence in favor of the hypothesis and then examine some of the more recent evidence that casts some doubt on it. EVIDENCE IN FAVOR OF MARKET EFFICIENCY Evidence in favor of market efficiency has examined
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as not providing sufficiently general theories. Informed by theories in economics and finance (and other disciplines such as psychology) and with the aid of computers‚ attempts to theorise accounting took a new direction. Large data collection and analysis emphasized a purportedly more systematic empirical approach to developing theory. Keywords accounting‚ neo-empiricism‚ capital markets research‚ behavioural finance‚ efficient This journal article is available in Australasian Accounting Business
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but to some extent‚ the DFA people do not totally believe it. According to the efficient market hypothesis‚ when market efficiency is strong-form‚ stocks always trade at their fair value on stock exchanges and technical analysis‚ fundamental analysis and insider trading analysis are all fruitless. But DFA was not simply an index fund manager‚ it believed in the value of sound academic research and skilled traders’ contribution. Because DFA used the found that small size and high B/M ratio stocks
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through different strategies that maximize profits. The success of this strategy will create a surge in demand of a particular stock increasing the market price while the contrary will create a decline in the market price value. The commonly used analysis by both the market and investors to understand or rate a stock is the price/earnings‚ or PE‚ ratio. It exemplifies the current price of a stock divided by a company earned for every share outstanding over the past year. When the PE ratio rises above
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assets should sell at similar prices. – The critical assumption underlying the approach is that the “comparable” assets/transactions are truly comparable to the investment being evaluated. • Relative valuation should be used to complement DCF analysis Valuation by Titman & Martin‚ Damodaran on Valuation 3 Introduction • The method of comparables involves using a price multiple to evaluate whether an asset is relatively fairly valued‚ relatively undervalued‚ or relatively overvalued
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but to some extent‚ the DFA people do not totally believe it. According to the efficient market hypothesis‚ when market efficiency is strong-form‚ stocks always trade at their fair value on stock exchanges and technical analysis‚ fundamental analysis and insider trading analysis are all fruitless. But DFA was not simply an index fund manager‚ it believed in the value of sound academic research and skilled traders’ contribution. Because DFA used the found that small size and high B/M ratio stocks
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MEASUREMENT APPROACH TO DECISION USEFULNESS • (184) MEASUREMENT APPROACH: i. ii. iii. Accountants (not investors) “undertake a responsibility” To incorporate CURRENT VALUE ACCOUNTING directly in to the F/S Provided “reasonable (37) reliability” iv. v. a. b. As part of an “increased obligation” of the accounting profession “To assist investors to predict future performance and value” Performance = N.I. Value = share price vi. Via a “more informative information system”
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Bill Miller and Value Trust Case Analysis Case Facts: 1 By middle 2005‚ Leg Mason Value Trust managed by Bill had outperformed S&P 500 index for 14 years in a row. This was longest successful run by any fund manager. The average return on the fund was 14.6% which surpassed the S&P by 3.67% per year. The value trust only had 36 holdings‚ 10 of which accounted for 50% of the fund’s assets. No manager had matched Miller’s consistent index beating record. Miller’s results were in contradiction
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BUS 3303 Finance Course review Ale Previtero AGENDA 1. Overview of valuation cases 2. WACC • Cost of equity‚ choosing beta‚ choosing weights‚ when to use premium. 3. Valuation using Discounted Cash Flow (DCF) • Key assumptions‚ Terminal Value‚ sensitivity 4. Valuation using multiples • Key points‚ pros & cons‚ choosing comparable firms • Which multiple? Which year? Example. 5. Financing an Acquisition • Determine price. Financing. Making a decision. 6. Final exam
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TOPIC: WHY IS THE EFFICIENCY OF AFRICAN STOCK MARKETS DESCRIBED AS WEAK? INTRODUCTION About two-thirds of African stock markets emerged in the late 1980s and early 1990s. The latest arrival is the Douala Stock Exchange in Cameroon‚ which was established in 2003‚ making it the youngest stock market on the African continent. Most of these markets were formed at the instigation of government to act as vehicles to privatize state-owned enterprises (Mlambo‚ Biekpe‚ 2001; Moss‚ 2004). African
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