Efficient markets & corp. managers

ACC201 Financial Accounting

Answered

Introduction – Define and explain the Efficient Market Hypothesis.

Explain and a critical discussion the EMH (distinguishing between the three levels of the hypothesis). Explanation of how asset prices should respond to different types of information, but it does not provide a very good account of the pricing of a firm’s debt and equity. Hence, the EMH is of little relevance to corporate managers.’ Explain and discuss this contention. (500 Words)

Literature Review – This section is the main body of your answer and should focus on why or why not the EMH does not provide an adequate explanation of asset pricing with respect to a firms debt and equity. You will be required to make reference here to relevant journal articles. (800 Words)

Classify Two area for assets pricing (Equity and Debts) :

1.What EMH can explain and

What EMH cannot explain, with critical discussion (i.e do you agree or disagree with these discussions and finding by lecture.

Eventually Link your discussion to asset pricing for equity and debt

Application by Corporate Managers – This section requires some thought and you are required to highlight features of the EMH which lends itself to the context of corporate managers. You are expected to include relevant economic and financial concepts and where appropriate to make use of relevant diagrams. [700 words)

Critique of EMH and with regards to anomalies etc.
Discuss about EHM on share valuation in IPO (and right issue) in the pricing of these.
Discuss about behavior of finance
Discuss to justify irrationally of investor

Referencing: APA

Fama, E. (1965) The behaviour of stock market prices. Journal of Business, 2, pp.34-105.

Fama, E. Fisher, L, Jensen, M., and Roll, R. (1969) The adjustment of stock prices to new information, International Economic Review, 10. 1. pp.1-21.

Fama, E. (1970) Efficient capital markets: a review of theory and empirical work. Journal of Finance, 25, 3, pp.383-417

Fama, E. (1991) Efficient Markets II. Journal of Finance, 49, 3, pp.1575-1617.

Jensen, M. (1969) Risk, the pricing of capital assets, and the evaluation of investment portfolios, Journal of Business, 42, pp.167-247.

Malkiel, B. (2003) The efficient market hypothesis and its critics, Journal of Economic Perspectives, 17, 1, pp.59-82.

Malkiel, B. (2004) A Random Walk Down Wall Street. Norton

Scholes, M. (1972) The market for securities substitution vs price pressure and the effect of information on share price, Journal of business, 45, pp.195-212.

Joseph D. Piotroski (2000), Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers, Journal of Accounting Research

Rafael La Porta, Josef Lakonishok, Andrei Shleifer and Robert Vishny (1997), Good News for Value Stocks: Further Evidence on Market Efficiency, The Journal of Finance

Werner F. M. De Bondt And Richard Thaler*(1985), Does The Stock Market Overreact?, The Journal Of Finance.
Eugene F. Fama*(1991), Efficient Capital Markets:Ii, The Journal Of Finance

Burton G. Malkiel (2003), The Efficient Market Hypothesis and Its Critics, Journal of Economic Perspectives

Narasimhan Jegadeesh and Sheridan Titman (1993), Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency, The Journal of Finance

Get instant help from 5000+ experts for