Semi-strong-form of efficiency, Financial Management

Semi-Strong form level of Efficiency

This level states that share prices reflects all available public information. (past and present information). If the market has achieved this level, then fundamental analysis will not enable investors to earn consistently higher than average returns.  Fundamental analysis involves the study of company’s accounts to determine its theoretical value and thereby find any undervalued share.  Fundamental theory states that every share in the market has an intrinsic value, which is equal to the present value of cash flows expected from the security.
 
Tests to prove semi-strong form of efficiency have concentrated on the ability of the market to anticipate share price changes before new information is formally announced. These tests are referred to as Event Studies. E.g. if two companies plans to merge, share prices of the 2 companies will change once the merger plans are made public. The market would show semi-strong form of efficiency if it were able to anticipate such changes so that share prices of the company would change in advance of the merger plans being confirmed.  Other events that can affect share prices are:

a) Stock splits

b) Death of CEO of company

c) Investment in major profitable projects

d) Changes in dividend policy, etc

Posted Date: 12/8/2012 7:17:03 AM | Location : United States







Related Discussions:- Semi-strong-form of efficiency, Assignment Help, Ask Question on Semi-strong-form of efficiency, Get Answer, Expert's Help, Semi-strong-form of efficiency Discussions

Write discussion on Semi-strong-form of efficiency
Your posts are moderated
Related Questions
Dividends are expected to grow at a constant rate of 5 percent per year in the future. Firms last dividend was $1 and stock price 10 dollars the firms beta 1,2 the rate of return o

TR has recently been promoted to his first management position. In the past, he very much enjoyed working as part of a team, but is having some difficulty in adapting to his new ro

Event-Driven Strategies : These strategies are solely focus on events of corporate life cycle for investing. They involve significant opportunities created by corporate events such

Q. Explain about Inventory Turnover Ratio ? Inventory Turnover Ratio: - Definite items of inventory are slow moving. It signifies that their consumption is quite slow and capit

how would you judge the potential profit of bajaj electronics on the first year of sales to booth plastics and give your suggestion regarding credit limit.Should it be approved or

Q. Example to show the companys current gearing? The company's current gearing 2000/ 8500 × 100 = 23.53% The current gearing position is on the low side particularly wh

I need report on Risk and Return. Do you provide help in topic Risk and Return? I need expert's assistance to solve my college assignment. Please suggest if it works for me.

How is present value affected by a change in the discount rate? Present value is inversely associated to the discount rate.  In other words current value moves in the opposite

What is Global Depository Receipts American / Global Depository Receipts (ADRs/ GDRs) Equity shares which are offered in international markets to international investors a

discuss the applicability of operation cycle in avegetable growing business