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
Do you provide help in college level Managerial Finance?

Assessment of in individual strengths and weaknesses Before finalizing career plan for an individual and placing him on career path, it is necessary to access his strengths and

Determine about the call and put option A call/ put option provision allow both issuing company and investor to redeem the bonds at a specified amount before maturity date. Lon

• Prepare a Trend Analysis for the Balance Sheet, Income Statement and Cash Flow Statement • This should include about 12 accounts in the Balance Sheet and about 10 Income Statemen

Q. Describe the Functions of Controller? (1) Planning and budgeting: - It comprises capital expenditure planning, profit planning, budgeting, inventory control, sales forecasti

Explain the effect of different dividend policies on the value of share respectively as per the walter model in Case 1: Dividend payout ratio is 50% Case 2: Dividend payout ratio

1024x768 Normal 0 false false false EN-IN X-NONE X-NONE

You know that Treasury bills have a beta of 0 because they are risk-free.  A portfolio of technology stocks has a beta of 3.  You plan to invest 40% of your investment capital in T

The credit term from the supplier is 2/30, net 60. Question: Calculate the effective annual rate if the firm does not take the discount.

How are financing costs generally incorporated into the capital budgeting analysis process? Financing costs are generally captured in the discount or hurdle rate while doing NPV