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 no need to analyse securities. In effect, efficient markets depend on market participants who try to “beat the market” by trading securities in an attempt to outperform it.
The efficient market debate plays an importan role in the decision between …show more content…
This is because of the impact yearly distributions has on NAVs.
NAVs measure the value of one share of a fund, like stock prices. They also give investors a way to compare a funds performance with market or industry benchmarks. However, some analysts argue that comparing long-term changes in a fund is not as meaningful as comparing long-term changes in its share price because funds will be reduced when the periodic distributions of capital gains are made to fundholders.
The Kiwisaver Fund had NAV per share of $37.25 on January 1, 2013. On December 31 of the same year the fund’s NAV was $40.71. Income distributions were $0.60 and the fund had capital gains distributions of $1.15. Without considering taxes and transaction costs, what rate of return dis an investor receive on the Kiwisaver Fund last year? (10 marks)
R= ((40.71-37.25+0.60+1.15))/37.25=0.1399,or 13.99%
There are two types of fund distributions: income distributions (potential dividends) and capital gains. Mutual funds invest in a variety of securities, including stocks, bonds and/or money market
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 no need to analyse securities. In effect, efficient markets depend on market participants who try to “beat the market” by trading securities in an attempt to outperform it.
The efficient market debate plays an importan role in the decision between …show more content…
This is because of the impact yearly distributions has on NAVs.
NAVs measure the value of one share of a fund, like stock prices. They also give investors a way to compare a funds performance with market or industry benchmarks. However, some analysts argue that comparing long-term changes in a fund is not as meaningful as comparing long-term changes in its share price because funds will be reduced when the periodic distributions of capital gains are made to fundholders.
The Kiwisaver Fund had NAV per share of $37.25 on January 1, 2013. On December 31 of the same year the fund’s NAV was $40.71. Income distributions were $0.60 and the fund had capital gains distributions of $1.15. Without considering taxes and transaction costs, what rate of return dis an investor receive on the Kiwisaver Fund last year? (10 marks)
R= ((40.71-37.25+0.60+1.15))/37.25=0.1399,or 13.99%
There are two types of fund distributions: income distributions (potential dividends) and capital gains. Mutual funds invest in a variety of securities, including stocks, bonds and/or money market