INVESTMENTS 投資學(xué) （博迪BODIE, KANE, MARCUS）Chap011 The Efficient Market Hypothesis

1、CHAPTER 11The Efficient Market HypothesisMaurice Kendall (1953) found no predictable pattern in stock prices.Prices are as likely to go up as to go down on any particular day.How do we explain random stock price changes?Efficient Market Hypothesis (EMH)Efficient Market Hypothesis (EMH)EMH says stock

2、 prices already reflect all available informationA forecast about favorable future performance leads to favorable current performance, as market participants rush to trade on new information.Result: Prices change until expected returns are exactly commensurate with risk.Efficient Market Hypothesis (

3、EMH)New information is unpredictable; if it could be predicted, then the prediction would be part of todays information.Stock prices that change in response to new (unpredictable) information also must move unpredictably.Stock price changes follow a random walk.Figure 11.1 Cumulative Abnormal Return

4、s Before Takeover Attempts: Target CompaniesFigure 11.2 Stock Price Reaction to CNBC ReportsInformation: The most precious commodity on Wall Street Strong competition assures prices reflect information.Information-gathering is motivated by desire for higher investment returns.The marginal return on

5、research activity may be so small that only managers of the largest portfolios will find them worth pursuing.EMH and CompetitionWeakSemi-strongStrongVersions of the EMHTechnical Analysis - using prices and volume information to predict future pricesSuccess depends on a sluggish response of stock pri

6、ces to fundamental supply-and-demand factors.Weak form efficiencyRelative strengthResistance levelsTypes of Stock AnalysisTypes of Stock AnalysisFundamental Analysis - using economic and accounting information to predict stock pricesTry to find firms that are better than everyone elses estimate.Try

7、to find poorly run firms that are not as bad as the market thinks.Semi strong form efficiency and fundamental analysisActive ManagementAn expensive strategySuitable only for very large portfoliosPassive Management: No attempt to outsmart the marketAccept EMHIndex Funds and ETFsVery low costsActive o

8、r Passive ManagementEven if the market is efficient a role exists for portfolio management:DiversificationAppropriate risk levelTax considerationsMarket Efficiency & Portfolio ManagementResource AllocationIf markets were inefficient, resources would be systematically misallocated.Firm with overvalue

9、d securities can raise capital too cheaply.Firm with undervalued securities may have to pass up profitable opportunities because cost of capital is too high.Efficient market perfect foresight market Empirical financial research enables us to assess the impact of a particular event on a firms stock p

10、rice.The abnormal return due to the event is the difference between the stocks actual return and a proxy for the stocks return in the absence of the event.Event StudiesReturns are adjusted to determine if they are abnormal.Market Model approach:a. rt = a + brmt + et(Expected Return)b. Excess Return

11、= (Actual - Expected)et = rt - (a + brMt)How Tests Are StructuredMagnitude IssueOnly managers of large portfolios can earn enough trading profits to make the exploitation of minor mispricing worth the effort.Selection Bias IssueOnly unsuccessful investment schemes are made public; good schemes remai

12、n private.Lucky Event IssueAre Markets Efficient?Weak-Form TestsReturns over the Short HorizonMomentum: Good or bad recent performance continues over short to intermediate time horizonsReturns over Long HorizonsEpisodes of overshooting followed by correctionPredictors of Broad Market ReturnsFama and

13、 FrenchAggregate returns are higher with higher dividend ratiosCampbell and ShillerEarnings yield can predict market returnsKeim and StambaughBond spreads can predict market returnsP/E EffectSmall Firm Effect (January Effect)Neglected Firm Effect and Liquidity EffectsBook-to-Market RatiosPost-Earnin

14、gs Announcement Price DriftSemistrong Tests: AnomaliesFigure 11.3 Average Annual Return for 10 Size-Based Portfolios, 1926 2008Figure 11.4 Average Return as a Function of Book-To-Market Ratio, 19262008Figure 11.5 Cumulative Abnormal Returns in Response to Earnings AnnouncementsStrong-Form Tests: Ins

15、ide InformationThe ability of insiders to trade profitability in their own stock has been documented in studies by Jaffe, Seyhun, Givoly, and PalmonSEC requires all insiders to register their trading activityInterpreting the AnomaliesThe most puzzling anomalies are price-earnings, small-firm, market

16、-to-book, momentum, and long-term reversal.Fama and French argue that these effects can be explained by risk premiums.Lakonishok, Shleifer, and Vishney argue that these effects are evidence of inefficient markets.Figure 11.6 Returns to Style Portfolio as a Predictor of GDP Growth Interpreting the Ev

17、idenceAnomalies or data mining?Some anomalies have disappeared.Book-to-market, size, and momentum may be real anomalies.Interpreting the EvidenceBubbles and market efficiencyPrices appear to differ from intrinsic values.Rapid run up followed by crashBubbles are difficult to predict and exploit.Stock

18、 Market AnalystsSome analysts may add value, but:Difficult to separate effects of new information from changes in investor demandFindings may lead to investing strategies that are too expensive to exploitMutual Fund PerformanceThe conventional performance benchmark today is a four-factor model, whic

19、h employs:the three Fama-French factors (the return on the market index, and returns to portfolios based on size and book-to-market ratio) plus a momentum factor (a portfolio constructed based on prior-year stock return).Figure 11.7 Estimates of Individual Mutual Fund Alphas, 1993 - 2007Consistency, the