Weak form level of efficiency-forms of efficiency, Financial Management

Assignment Help:

Weak form level of efficiency

This level states that share prices fully reflect information in historic share price movement and patterns (past information/historic information).  If this hypothesis is correct, then, it should be possible to predict future share price movement from historical patterns. E.g. If the company’s shares have increased steadily over the past few months to the current price of Shs.30, then this price will already fully reflect the information about the company’s growth and therefore the next change in share prices could either be upward, downward or constant with equal probability.  It therefore follows that technical analysis or Chartism will not enable investors to make arbitrage profits. In markets that have achieved this level then security prices follow a trendles random walk.

Studies to test this level have been based on the principle that:

  • The share price changes are random
  • That there is no connection between share price movement and new share price changes.  It is possible to prove statistically that there is no correlation between successive changes in price of shares and therefore trend in share price changes cannot be detected. This can be done by using serial correlation (or auto-correlation) test such as Durbin Watson Statistics.

 


Related Discussions:- Weak form level of efficiency-forms of efficiency

Define trustworthy collateral from the lenders perspective, What is trustwo...

What is trustworthy collateral from the lenders' perspective?  Explain whether accounts receivable and inventory are trustworthy collateral. Assets which are readily marketable

Describes the methods of capital budgeting, Q. Describes the methods of Cap...

Q. Describes the methods of Capital Budgeting? Capital Budgeting: - Capital Budgeting is the procedure of making decisions for investment in long-term assets. It is a method of

Gordon''s dividend equalisation model, If the EPS is Rs.5, dividend pay-out...

If the EPS is Rs.5, dividend pay-out ratio is 50%, cost of equity is 20% and growth rate in the ROI is 15%. What is the value of the stock as per Gordon's Dividend Equalisation Mod

the use of a preauthorized check system, In general, what type of firm wou...

In general, what type of firm would benefit from the use of a preauthorized check system and what specific types of companies have successfully used this device to accelerate cash

Factors considered for analyzing sovereign rating, Table 1:  ...

Table 1:  Politics Stability of the existing government structure National/provincial government r

Working capital management, what are the objectives of working capital mana...

what are the objectives of working capital management

Kim, Blossom Lawn expects to have total sales next year totaling $15,000,00...

Blossom Lawn expects to have total sales next year totaling $15,000,000 and the firm pays taxes at 35% and will owe $300,000 in interest expenses.

Measure a project’s risk as the change in the cv, Define why we measure a p...

Define why we measure a project’s risk as the change in the CV. We calculate a project’s risk as the change in the coefficient of variation since this focuses on the change in

Answer key, the approach focussed mainly on the financial problems of a cor...

the approach focussed mainly on the financial problems of a corporate enterprise

Financial statement, A company commissioned a valuation of its land and bui...

A company commissioned a valuation of its land and buildings for inclusion in its financial statements. The valuation document contained the following details:

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