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19 Cards in this Set
- Front
- Back
If market is fully efficient, what is impact on active and passive investing strategies? |
Active cannot earn positive risk-adjusted returns consistently and investors should therefore use a passive strategy |
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Intrinsic Value |
Price that investors with full knowledge of the asset's characteristics would place on asset |
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What makes market more efficient? |
Large numbers of market participants and greater information availability |
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What makes markets less efficient? |
1. Impediments to arbitrage and short selling 2. High costs of trading and gathering information |
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Weak Form of Efficient Markets Hypothesis (EMH) |
Security prices fully reflect all past price and volume information |
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Semi-Strong Form of Efficient Markets Hypothesis |
Security prices fully reflect all publicly available information |
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Strong Form of Efficient Markets Hypothesis |
Security prices fully reflect all private and public information |
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If markets are weak form efficient... |
Technical analysis does not consistently result in abnormal profits |
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If markets are semi-strong form efficient... |
Fundamental analysis does not consistently result in abnormal profits |
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If markets are strong-form efficient... |
Active investment management does not consistently result in abnormal profits |
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Market anomaly |
Something that deviates from EMH *most evidence suggests anomalies are not violations of market efficiency but are due to methodologies used in anomal research, such as data mining |
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January Effect |
Small firm stock returns are higher at the beg of Jan |
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Overreaction Anomalies |
Stock returns subsequently reverse |
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Momentum Anomalies |
High short-term returns are followed by continued high returns |
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Size Effect Anomaly and Value Effect |
Small-cap stocks outperform large-cap stocks and value stocks outperform growth stocks |
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Loss Aversion
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Dislike a loss more than they like a gain |
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Investor Overconfidence |
Overestimate ability to analyze security info |
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Herding |
Investors act in concert on same side of market by mimicking investment actions of others |
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Information Cascade
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Investors mimic decisions of others |