Market Efficiency
[vsw id=”7Ub4Gt-0nMs” source=”youtube” width=”611″ height=”344″ autoplay=”no”] Market efficiency describes the extent to which available information is quickly reflected in the market price. Market efficiency is highly important to active investment managers as their advantage depends on exploiting market inefficiencies and…
Factors that Affect a Market’s Efficiency
Most, if not all, markets can be thought of as existing on a spectrum between perfect efficiency and complete inefficiency. This is because several factors contribute to or impede the efficiency of a market, including market participants, information availability and…
Weak, Semi-strong, and Strong Forms Market Efficiency
Weak, Semi-strong, and Strong Forms Market Efficiency 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…
Market Efficiency for Fundamental Analysis
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} & \text{No} & \text{Yes}…
Market Anomalies
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
[vsw id=”7Ub4Gt-0nMs” source=”youtube” width=”611″ height=”344″ autoplay=”no”] 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…
Types of Equity Securities
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…
Public vs. Private Equity Securities
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….
Risk and Return of Equity Securities
[vsw id=”dzzqUd0SqtQ” source=”youtube” width=”611″ height=”344″ autoplay=”no”] 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…
Role of 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…
