Importance of Equity Securities
The study of equity securities is important for many reasons. Equity Securitiesin Global Financial Markets
Behavioural Finance
Behavioural financeexamines investor behaviour to understand how people make decisions, individually and collectively. Behavioural finance does not assume that people consider all available information in decision-making and act rationally by maximising utility within budget constraints and updating expectations consistent with Bayes’ formula. The resulting behaviours may affect what is observed in the financial markets. Loss…
Other Anomalies, Implications of Market Pricing Anomalies
A number of additional anomalies has been documented in the financial markets, including the existence of Closed-End Investment Fund Discounts A closed-end investment fund issues a fixed number of shares at inception and does not sell any additional shares after the initial offering. Therefore, the fund capitalisation is fixed unless a secondary public offering is…
Market Pricing Anomalies – Time Series and Cross-Sectional
Researchers conclude that a market anomaly may be present if a change in the price of an asset or security cannot directly be linked to current relevant information known in the market or to the release of new information into the market. In the widespread search for discovering profitable anomalies, many findings could simply be the…
Implications of the Efficient Market Hypothesis
The implications of efficient markets to investment managers and analysts are important because they affect the value of securities and how these securities are managed. Several implications can be drawn from the evidence on efficient markets for developed markets: Fundamental Analysis Fundamental analysis is the examiniation of publicly available information and the formulaiton of forecasts…
Forms of Market Efficiency
A finding that investors can consistently earn abnormal returns by trading on the basis of information is evidence contrary to market efficiency. In general, abnormal returns are returns in excess of those expected given a security’s risk and the market’s return. In other words, abnormal return equals actual return less expected return. Weak Form In the…
Factors Affecting Market Efficiency Including Trading Costs
For markets to be efficient, prices should adjust quickly and rationally to the release of new information. In other words, prices of assets in an efficient market should “fully reflect” all information. Market Participants One of the most critical factors contributing to the degree of efficiency in a market is the number of market participants. …
The Concept of Market Efficiency
An informationally efficient market (an efficient market) is a market in which asset prices reflect new information quickly and rationally. An efficient market is thus a market in which asset prices reflect all past and present information. Investment managers and analysts, as noted, are interested in market efficiency because the extent to which a market…
Indexes for Alternative Investments
Three of the most widely followed alternative investment classes are commodities, real estate, and hedge funds. Commodity Indexes Commodity indexes consist of futures contracts on one or more commodities, such as agricultural products (rice, wheat, sugar), livestock (cattle, hogs), precious and common metals (gold, silver, copper), and energy commodities (crude oil, natural gas). Real Estate…
Fixed-income indexes
Construction The fixed-income universe includes securities issued by governments, government agencies, and corporations. Each of these entities may issue a variety of fixed-income securities with different characteristics. As a result, the number of fixed-income securities is many times larger than the number of equity securities. To represent a specific fixed-income market or segment, indexes may…