Financial market

EC371 Term paper Contrast the ‘Adaptive Markets Hypothesis’ with the ‘Efficient Markets Hypothesis’, being careful to assess their respective strengths and weaknesses. 1. Introduction In recent years the effectiveness of the Efficient Market Hypothesis (EMH) has been substantially questioned by the financial economists and a new theory related to the market behaviour, known as the Adaptive Market Hypothesis (AMH), was proposed. In order to critically assess and contrast these…

As households execute decisions under uncertainty, understanding descriptive and normative analyses of financial decisions may lead to improved choices. Normative theories of rational choice address the decisions anticipated by rational agents. This theory assumes that agents have stable preferences and engage in maximizing behavior. Descriptive theories try to characterize the actual choices implemented; recognizing that agents display biases in their economic decision-making and use heuristics…

the utility for the risk-averse investor is both times positive. This shows the effect of the portfolio optimisation under the condition of utility maximisation for the investors risk profile. The risk or uncertainty consist of the non reducible market or systematic risk, which is affected by common macroeconomic factors, and the firm-specific risk. The firm-specific (or in this case industry specific) risk like success in research or personal development varies between companies and can be…

of NY 'dark pool' lawsuit is an article that I thought was interesting when it comes to business and law. It talks with reference to the two different sides and what they are trying to accomplish when it comes to the aspects of dark pools in stock markets. Stempel describes dark pools as a way of discretely trade shares, without all the investors being informed. Attorney General Eric Schneiderman is bringing up a lawsuit against Barclays. Barclays is a bank that is enthusiastic on the subject of…

The SML is determined by the following: T-bill rate = 8% with a beta equal to zero, beta for the market is 1.0, and the expected rate of return for the market is: 0.5 ( (20% + 5%) = 12.5% See the following graph. [pic] The equation for the security market line is: E(r) = 8% + β(12.5% – 8%) y. The aggressive stock has a fair expected rate of return of: E(rA) = 8% + 2.0(12.5% –…

research as reported by Beamish and Lupton? Findings reported by Beamish and Lupton on Research Alliance: • Performance measures are not only profitability and stock market returns, as the stocks are sometimes not traded and objective is sometimes not short term profitability. Better are Surveys of JV managers regarding satisfaction on financial/operational performance, knowledge transfer and capability development. Objective measures may include ROA, longevity, survival and stability of JV in…

Discuss the efficient market hypothesis and its relevance with the investment management strategies. (10 marks) The Efficient Market Hypothesis (EMH) is an investment theory that states it is impossible to “beat the market” because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. The paradox of efficient markets is that if every investor believed a market was efficient, then the market would not be efficient because there would be…

their respective betas. In APT, there is as many betas as there are factors that affect the price of the security. However, empirical work suggests that a three or four factor model adequately captures the influence of systematic factors on stock market returns. Richard Roll and Stephen Ross (1984) have identified the following four factors as being the most…

Behavioral Aspects of Market Anomalies Anomaly is defined as ‘something that deviates from what is standard, normal, or expected’ by Oxford dictionary (2016). George and Elton (2001) has defined market anomaly as a new or unexpected phenomenon in relation to any theory, model or hypothesis. The founder of behavioural finance, Tversky and Kahneman (1986), suggested that the market anomalies are the indicators of inefficient markets, which might either occur only once and disappear, or occur…

predict average returns well and therefore may be capturing risk premiums. In addition to the market index (so, yes, beta is important in this model as well), the model also incorporates a small minus big factor (i.e. small stocks may be more sensitive to changes in business conditions than large stocks) and a high minus low factor (i.e. high book to market value stocks are more likely to be in financial…