Eugene Fama developed a framework of market efficiency that laid out three forms of efficiency: weak, semi-strong, and strong. Each form is defined with respect to the available information that is reflected in prices. Investors trading on available information that…

The table below shows if abnormal returns can be earned through various strategies and active management assuming different types of market efficiency. $$ \begin{array}{l|cccc} \textbf{} & \textbf{Technical Analysis} & \textbf{Fundamental Analysis} & \textbf{Insider Trading} & \textbf{Active Management} \\ \hline \textbf{Weak}…

Market anomalies are exceptions to the notion of market efficiency. They may be present if a change in the price of an asset or security cannot directly be linked to current relevant information known in the market. Market anomalies are…

Behavioral finance examines investor behavior to understand how people make decisions, individually and collectively. Behavioral finance does not assume that investors always act rationally but instead that people can be negatively affected by behavioral biases. Market efficiency does not require…

Unlike debt securities, equity securities do no impose an obligation on the issuer to repay the amount financed. Instead, shareholders act as owners of a company with a claim on the company’s net assets and expect that management will act…

Investment Characteristics: Public Equity: Offers easier market entry and exit, and is subject to market fluctuations and transparency. Private Equity: Provides potential for higher returns due to illiquidity and limited access, with a focus on long-term growth and strategic development….

The type of security and its features affect its risk/return profile. Therefore, as an investor’s risk increases, its expected return should also increase to compensate. Equity Return Characteristics There are two main sources of total return for equity securities –…

Companies issue equity securities in the primary markets to raise capital and increase liquidity. Having public shares also gives the company another currency to make acquisitions with or incentivize employees. Raising capital aims to maximize shareholder wealth, which may be…

The book value of a company’s equity reflects the historical operating and financing decisions of its management. The market value of the company’s equity reflects these decisions as well as investors’ collective assessment and expectations about the company’s future cash…

Effective industry analysis helps to provide a framework for company analysis. Uses of Industry Analysis Understanding a company’s business and business environment: a critical step in stock valuation and credit analysis Identifying active equity investment opportunities: helps active investors with…