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11-1
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Strong-form efficiency states that stock prices reflect all information relevant to the firm, even including information available only to company insiders.
11-6
Using stock prices and volume information to predict future prices Technical analysis should not work even in a _________
11-8
Sentiment Indicators
Methods employed:
Trin Statistic, Confidence Index, Put/Call Ratio
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Moving Averages
Average level of the index (stock price) over a given interval of time (e.g. 52 weeks)
11-11
Breadth
A measure of the extens to which movement in a market index is reflected in the price movements of all the stocks in the market. Spread=number of stocks those prices increased-number of stocks those prices decreased
If advances are larger than declines then the market is stronger
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If the put/call ratio increases above a historical average then it is accepted as a signal for ________.
11-15
firm, expectations of future interest rates, and risk evaluation of the firm to determine proper stock prices. The fundamental analyst tries to determine the present discounted value of all the payments a stockholder will receive from each share of stock. Then the analyst compare the fair price he computed with the market price and if the market price is lower then he recommend to _____ the shares since they are __________.
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Event Studies
What is an event study?
It is a technique of empirical financial research that enables an observer to assess the impact of a particular event on a firms stock price.
11-21
The abnormal return (firm-specific) is the unexpected return that results from the event.
We need to estimate et to determine abnormal return.
et=rt-(a+brMt)
et: measures the stocks return over and above what one would predict based on broad market movements in that period, given the stocks sensitivity to the market due to the event.
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Leakage of information: Information regarding a relevant event is released to a small group of investors before official public release.
In this case the stock prices may start to react the event before the official announcement date. So, the abnormal return on the official announcement date may not be a good indicator to analyse the effects of the event on the stock prices.
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11.1 shows an example for an effect of good event on the stock returns.
The huge jump of the CAR on the event date (day 0). After the announcement date CAR no longer increases or decreases. The CAR starts to increase 30 days in advance of the announcement date. Leakage Buying large blocks of stock
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Strong-form Tests
We do not expect markets to be strong-form efficient. If insiders trade then they can have abnormal profits because of their superior information. Jaffe (1974) shows that the stock prices tend to increase (decrease) after insiders intensively bought (sold) shares.
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