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Study Guide 48
Efficient Markets:
Efficient Market is a market in which asset prices show new information
quickly and rationally. It can be described as a market in which asset prices
show all past and present information.
The efficiency of a market is affected by the number of market participants
and depth of analyst coverage, information availability, and limits to trading.
Market Value versus Intrinsic Value:
Market Value
- the price at which an asset can be bought or sold today.
Intrinsic Value
- how much the investors are willing to pay for a certain asset.
Efficient markets= market=intrinsic
Not efficient markets= market different from intrinsic
Types of Efficient Market Hypothesis:
1. Strong-Form= security prices fully show both public and private
information.
2. Insiders would not be able to earn abnormal returns form trading on
the basis of private information.
3. Prices show everything that the management of a company knows
about the financial condition of the company that has not been
publicly released
4. Weak-form-security prices fully show all past market data, which
refers to all historical price and trading volume information.
5. Semi-Strong- prices show all publicly known and available
information.
6. Publicly available information include financial statement data and
financial market data.
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