Semi-strong-form of efficiency, Financial Management

Assignment Help:

Semi-Strong form level of Efficiency

This level states that share prices reflects all available public information. (past and present information). If the market has achieved this level, then fundamental analysis will not enable investors to earn consistently higher than average returns.  Fundamental analysis involves the study of company’s accounts to determine its theoretical value and thereby find any undervalued share.  Fundamental theory states that every share in the market has an intrinsic value, which is equal to the present value of cash flows expected from the security.
 
Tests to prove semi-strong form of efficiency have concentrated on the ability of the market to anticipate share price changes before new information is formally announced. These tests are referred to as Event Studies. E.g. if two companies plans to merge, share prices of the 2 companies will change once the merger plans are made public. The market would show semi-strong form of efficiency if it were able to anticipate such changes so that share prices of the company would change in advance of the merger plans being confirmed.  Other events that can affect share prices are:

a) Stock splits

b) Death of CEO of company

c) Investment in major profitable projects

d) Changes in dividend policy, etc


Related Discussions:- Semi-strong-form of efficiency

How does continuous compounding benefit an investor, How does continuous co...

How does continuous compounding benefit an investor? The effect of enhancing the number of compounding periods per year is to increase the future value of the investment.  The

Passive management, In the efficient markets, whether it is sec...

In the efficient markets, whether it is security, equity or fixed-income markets it is believed that the investors use some type of passive strategy in

Borrowing funds to purchase bonds, Borrowing Funds to Purchas...

Borrowing Funds to Purchase Bonds There are several sources available to borrow funds. When securities are purchased with borrowed funds then the mo

Corporate debt instruments, Corporate debt instruments are the financ...

Corporate debt instruments are the financial obligations of a corporation having priority over the claims of the shareholders (equity or preferred) at the time of

What are the negative consequences of a company holding, What are the negat...

What are the negative consequences of a company holding too much cash? A company holding in excess of cash would be giving up the opportunity to invest more in income producing

Bond and Stock valuation, 2. Suppose a 12% coupon bond sells at par today; ...

2. Suppose a 12% coupon bond sells at par today; and three years from today, the required rate on the same bond is 8%. What is the coupon rate on the bond today and what will it be

Differences between indirect costs and direct costs, a) Variable costs: Rem...

a) Variable costs: Remuneration of flight attendants, Meals and drinks onboard, Fuel. Fixed costs: promotions and Advertising, Remuneration of administrative staff and Airport c

Analysis of company position, Analysis of Company Position Associated ...

Analysis of Company Position Associated International Supplies Ltd Circulation: Associated International Supplies Ltd (AIS Ltd.) Author: A. Consultant, AXY Consultin

Example to show the companys current gearing, Q. Example to show the compan...

Q. Example to show the companys current gearing? The company's current gearing 2000/ 8500 × 100 = 23.53% The current gearing position is on the low side particularly wh

Management, . Why do some organizations seem to have a new CEO every year o...

. Why do some organizations seem to have a new CEO every year or two, whereas others have top leaders who stay with the company for many years (e.g., John Chambers at Cisco)? What

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd