lecture 5 the efficient markets hypothesis

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1、Lecture6:EfficientMarketsandExcessVolatilityTheEfficientMarketsHypothesisHistoryoftheHypothesisReasonstothinkmarketsareefficientReasonstodoubtmarketsareefficientTechnicalanalysisEmpiricalevidenceinliteratureHomeworkassignmentandregressionsEarliestKnownStatement“Whensharesbecomepubliclyknown

2、inanopenmarket,thevaluewhichtheyacquiretheremayberegardedasthejudgementofthebestintelligenceconcerningthem.”-GeorgeGibson,TheStockExchangesofLondonParisandNewYork,G.P.Putnman&Sons,NewYork,1889IntuitionofEfficiencyReuter’spigeonsandthetelegraphBeepers&theinternetMustbehardtogetrichTextbookVe

3、rsionTodayAsoneofthesixmostimportantideasinfinance:“Securitypricesaccuratelyreflectavailableinformation,andrespondrapidlytonewinformationassoonasitbecomesavailable”RichardBrealey&StewartMyers,PrinciplesofCorporateFinance,1996HarryRoberts,1967Weakformefficiency:pricesincorporateinformationab

4、outpastpricesSemi-strongform:incorporateallpubliclyavailableinformationStrongform:allinformation,includinginsideinformationPriceasPDVofExpectedDividendsIfearningsequaldividendsandifdividendsgrowatlong-runrateg,thenbygrowingconsolmodelP=E/(r-g),P/E=1/(r-g).(GordonModel)So,efficientmarketsthe

5、orypurportstoexplainwhyP/EvariesacrossstocksPEGratioispopularindicator=g’/(P/E),whereg’isshort-rungrowthrate;popularruleofthumb:buyifPEG<0.5PEGruleofthumbmakessenseonlyifg’bearsacertainrelationtog;notasensiblerule.EfficientmarketsdeniesthatanyruleworksReasonstoThinkMarketsOughttoBeEfficient

6、MarginalinvestordeterminespricesSmartmoneydominatestradingSurvivaloffittestReasonstoDoubttheseReasonsMarginalinvestor:wealthmattersSmartmoney:matterofdegree.LimitstoarbitragetheorySurvivaloffittest:lifecyclerenewsPsychologicalFactorsGamblingbehaviorOverconfidenceSlownesstomakemoney,futility

7、ofcareertryingtoproveothersofone’sabilitySiegelandPeterLynchPopularDoubtersofEfficiencyPeterLynch:ElementaryschoolchildrenbeatprofessionalsBeardstownLadiesRobertKiyosakiRichDad,PoorDadMotleyFoolRaskobontheMarket“Supposeamanmarriesattheageoftwenty-threean