..."A Random Walk Down Wall Street" There is a sense of complexity today that has led many to believe the individual investor has little chance of competing with professional brokers and investment firms. However, Malkiel states this is a major misconception as he explains in his book "A Random Walk Down Wall Street". What does a random walk mean? The random walk means in terms of the stock market that, "short term changes in stock prices cannot be predicted". So how does a rational investor determine which stocks to purchase to maximize returns? Chapter 1 begins by defining and determining the difference in investing and speculating. Investing defined by Malkiel is the method of "purchasing assets to gain profit in the form of reasonably predictable income or appreciation over the long term". Speculating in a sense is predicting, but without sufficient data to support any kind of conclusion. What is investing? Investing in its simplest form is the expectation to receive greater value in the future than you have today by saving income rather than spending. For example a savings account will earn a particular interest rate as will a corporate bond. Investment returns therefore depend on the allocation of funds and future events. Traditionally there have been two approaches used by the investment community to determine asset valuation: "the firm-foundation theory" and the "castle in the air theory". The firm foundation theory argues that each investment instrument has something called...
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...Econometrics of Random Walk Hypothesis ABSTRACT The random walk hypothesis is a key instrument used in the analysis of forecasting in the economic and financial market. It is used primarily in the forecasting of the prices of stocks. This is useful to determine and forecast the prices of stocks given previous stock prices. This paper discusses the basis of the hypothesis, the two types of random walk hypothesis, its framework, methodologies and the analysis of its repercussions. INTRODUCTION The random walk hypothesis states that stock price changes have the same distribution and are independent of one another, so the past movement or trend of a stock price or of the market as a whole cannot be used to predict its future price or any possible future trends. The concept originated in the late 1800s from Jules Regnault, a French broker, and Louis Bachelier, a French mathematician, whose Ph.D. dissertation titled "The Theory of Speculation". The same ideas were later developed and studied further by Paul Cootner, an MIT Sloan School of Management professor, in his 1964 book The Random Character of Stock Market Prices. The term was popularized by the 1973 book, A Random Walk Down Wall Street, by Burton Malkiel, a professor of economics at Princeton University, and was used earlier in Eugene Fama's 1965 article "Random Walks In Stock Market Prices”. The theory that stock prices move randomly was earlier proposed by Maurice Kendall in his 1953 paper, “The Analytics of Economic Time...
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...MARKETS / MODELS / CRISIS … WHO IS THE WINNER? Walid BEHAR Founder of TBS Finance Entrepreneur, Investment Analyst, Accelero Capital a.walidbehar@gmail.com Since the Great Depression*, History has shown us how important it is to understand the rationale behind those 3 key elements that will rule the future of Financial markets. Understanding the synergy and link between them is like trying to know who has been engendered first, the egg or the chicken. Every story has its beginning, let us begin by the foundation. It seems to be that markets are driven by a simple rule « the rule of bid and ask ». After a bloody battle between classics and Keynesians, the little child has grown up to become what economists call «The Efficient Market». But as me you are wondering: is it so efficient? Not so much! A market is efficient if every relevant information is perfectly and at a time reflected on coted assets prices In fact, there are three versions of the efficient market hypothesis. In weak-form hypothesis futures prices cannot be forecasted by analyzing past trends from historical data. In other words, technical analysis will not be consistent and will not produce excess return. In semi-strong efficiency, share prices should adjust to the available new information very rapidly. Thus, it implies that neither fundamental nor technical analysis methods will be able to reliably produce interesting returns. Finally, the strong form of efficient market stipulates that...
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...but which spoke not only in these silent symbols of the after-dinner face, but more often and loudly in the acts of his life. He was austere with himself; drank gin when he was alone, to mortify a taste for vintages; and though he enjoyed the theatre, had not crossed the doors of one for twenty years. But he had an approved tolerance for others; sometimes wondering, almost with envy, at the high pressure of spirits involved in their misdeeds; and in any extremity inclined to help rather than to reprove. 'I incline to, Cain's heresy,' he used to say. 'I let my brother go to the devil in his quaintly: 'own way.' In this character, it was frequently his fortune to be the last reputable acquaintance and the last good influence in the lives of down-going men. And to such as these, so long as they came about his chambers, he never marked a shade of change in his demeanour. No doubt the feat was easy to Mr. Utterson; for he was undemonstrative at the best, and even his friendship seemed to be founded in a similar catholicity of good-nature. It is the mark of a modest man to accept his friendly circle ready-made from the hands of opportunity; and that was the lawyer's way. His friends were those of his own blood or those whom he had known the longest; his affections, like ivy, were the growth of time, they implied no aptness in the object. Hence, no doubt, the bond that united him to Mr. Richard Enfield, his distant kinsman, the well-known man about town....
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...The house on maple street Two little kids were invited to a haunted house the night before Halloween. The two kids were Jake and Landon, they were best of friends until they went to the haunted house. It all started when Jake got a phone call. A strange man was outside of our house on the phone with us. He was wearing a big black coat and we couldn't see his face. Then he said,” to come to a haunted house tonight” and we said,” why not”. At 10pm we snuck out to the haunted house on maple street. We thought there would be a lot of people there cause it sounded cool and because he said there would be a lot of people. But when we arrived there was no one there. Then we saw that guy at the window he, he tilted his head and there was steam outside. When the steam went away then there were two guys at the window. We got a call from a phone number and it said Jimmy Eithan. They said come in or else. So there was steam again and they disappeared....
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...The High Life In high school peer pressure is stronger then ever. Students are critically judged by their peers and are forced to either compromise one’s own moral values to fit into the group or face being ostracized and out casted. Students sometimes feel backed against a wall and following the group is sometimes easier than going against the grain. It all started a few years ago on a blistering summer day towards the end of the school year. Class was, like usual, long, boring and unbelievably tiresome. All day long I had been thanking God, more than usual, that it was Friday; earlier that day I ran it an old friend, Deiondre Howard, we made plans to hangout; he said he wanted to introduce me to a few friends and chill with a few girls. So with the possibility of meeting and flirting with a couple hot girls, I droned through last period, counting the seconds go by on my English teacher’s old handmade wooden clock. Suddenly the bell rings, I sighed with instant relief, “Finally”. I darted out of class like a bat out of hell, excited, I immediately ran into the jam packed grid-lock traffic of Bayside High School’s hallways. As I pushed, shoved, and fought my way through the human blockade I slowly but surely made it closer to the courtyard. Bayside’s courtyard is like a crucible filled with every type of spice you could imagine mixed together. With that said, like any other high school, Bayside still had its moments of segregation based on popularity. For instance, there’s...
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...see him perched in his recliner in the dim room only being lit by the television playing The Simpson's. His bulky hands are near knocked over beers. He probably smacked them in his sleep. There are about ten beers and a bottle of scotch sat atop the table to his right, one more beer by his feet. Well at least he won't hit me if he wakes up. He's always in a better mood when drunk. After, I turn to my right and start up the stairs. The house is relatively big compared to where we lived last year. Living in a yellow trailer near a railroad and across the street from a racetrack was hell. We moved after around four months of living there due to the fact that he got kicked out for not paying the bills, after that, we stayed at my aunt's house when he robbed a bank and bought this place. My room is two doors down on the right and David's is the room on the left, he doesn't need it seeing as he's always asleep in the living room. I walk in and see two bags sat on my bare bed and a pile of clothes meant to be put in the last bag. I had started last week with packing anything useful, even packing canned foods or anything you don't have to cook, but I got interrupted by my father and his knife being cut into my back. Then again today. He's asleep now so I can hurry up and leave, but first I need money. Then, I head to my father's room to get left over cash from the robbery and unlock the door. I step inside to smell a clean room since he has been in here maybe three times. I tiptoe over...
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...10 GREAT WALKS IN OUR FAVORITE CITIES THERE’S NO BETTER WAY TO EXPLORE A CITY than wandering its streets and alleys, from terracotta-hued palaces, picturesque squares, and baroque architectural showstoppers in Rome, to the modern glass towers, 19th-century limestone man ions, and secret, pocket-size parks of s Manhattan. We’ve gathered 10 fabulous walks in our favorite cities in the United States and Europe, so put on your comfy shoes and hit the streets. 1/4 mile W. Wacker Drive S. Water Street Lake Street Clark St. James R. Thompson Center END CLARK River Chicago Union Station The Great Fire of 1871 could have been the death of Chicago, but instead it proved to be a grand rebirth, as renowned architects rebuilt the city’s skyline. Today it’s Chicago’s most aweinspiring attribute. Start with the Willis Tower, a 1,454-foot giant that was the world’s tallest building when completed in 1973. Next, head to South LaSalle St. and the Rookery Building. This 12-story stunner, completed in 1888 ADAMS L Jackson Blvd. JACKSON Monadnock Building L L LIBRARY Van Buren Street LASALLE 224 S. Michigan Ave. Auditorium Theatre LaSalle St. Station Harrison St. in 1889 that still hosts performances. Double back to Jackson and Dearborn to see the geometric, 4.6-acre Federal Center, completed in the early 1970s by Mies van der Rohe. Don’t miss the graceful slopes of Chase Tower, built in 1969 as the First...
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...new friends, find new hobbies, and maybe even meet a girl. But every single time I see someone I might like to talk to, I do the same thing. I sit there, and look back and forth between them and the ground. I do this, up until they, or I leave. Then once separated, I think of all the ways I could have started a conversation, and all the different places it could have gone. It doesn’t make any sense to me! Whenever I’m in a group of people, even if I have never met any of them, I feel perfectly fine. I’ll participate in conversations, and even crack jokes. Some of the best friends that I have ever made have come from a large group of random people. It’s only when I am alone, that suddenly I lock up, and become this shy, personality-less hunk of meat. Just sitting and waiting to be left alone. I work as a bagger at the H-E-B on 19th street in Waco. It takes a ton of communication amungst the workers to make sure everything goes where it needs to go, when they need to be there. We especially talk with the customers, to make sure they have the perfect shopping experience. So, it can be seen where not being able to talk could put a hitch in the giddy up. When a customer checks out, we are supposed to greet them, and try to start some sort of conversation. I get into trouble at work sometimes, because I will take their groceries, put...
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...The Director sets up the scene where Doyle and Russo are just going out on the town for drinks at the Copacabana in Manhattan, also where the famous long shot scene was filmed in the classic movie Goodfellas. Doyle whose personality influences Russo finally get their eyes on the big fish. The Director introduces the criminal element to the audience. Showing Sal and Angie at the center table living the highlife, Sal is tipping $100 bills at random, Angie is showing off her diamonds. Once Doyle notices the money and diamonds the scenes takes a turn. Three Degrees, a famous black female group in early 70's where muted as the ambient sound of people talking and the noise of dishes clashing went silent as Dolye went into a transparent stare. As he gazed at a table of thugs, with the facial expression conveying, “Never worked an honest day’s work in their lives.” Meanwhile sinister music has taken over the scene, an eerie sound alerting the audience that these guys were up to no good. Doyle eventually convinces Russo to tail Sal and...
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...Homework Set 2 MGT 240, Spring 2015 Inflation, Real and Nominal Cash Flows This problem set is due January 29th at the beginning of class. To solve this problem set, the material in classes 1-5 and RWJ Chapters 5 and 6 are particularly useful. Students may work in groups of up to 4 people and each group submits one write-up. 1. (5 points) Your bank offers four savings products. All products pay interest at the end of the compounding period. Product Annual pays an APR of 12.00% compounded annually, Product Semi pays an APR of 11.80% compounded semi-annually, Product Quarterly pays an APR of 11.60% compounded quarterly and Product Monthly pays an APR of 11.40% compounded monthly. If you have savings of $100,000 to deposit and will not make any additions to or withdrawals from this account for 4 years, which savings product would you prefer? Why? 2. (8 points) You are looking to save for retirement. You are currently 21 years old and plan to save for the next 25 years (you will start saving on your 22nd birthday and make your last deposit on your 46th birthday). On your 46th birthday, you will retire. Starting on your 47th birthday and continuing until your 76th birthday, you will make withdrawals of $60,000 per year from your account. How much do you need to deposit each year if the interest rate is 7.5% throughout the entire time? How much do you need to deposit each year if the interest rate is 5.5% throughout the entire time? 3. (8 points) You are looking to save for retirement...
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...meeting in the glass-walled conference room that looked east over Massachusetts Bay. The management team was wrestling with the complexities of acquiring Huadong, a Shanghai-based investment firm. He glanced at his watch: 8:10 already, and they still had three more agenda items to work through. “I just don’t trust their valuation of all of their assets,” said Sarah Hicks, Kaspa’s CFO. “The securities are straightforward, but—” She stopped mid-sentence as the building shook and a low rumble rose up from below. She and her colleagues looked at one another and then, almost as one, rushed to the window. Smoke was billowing out of the subway entrance across from Boston’s historic South Station. Traffic had stopped, and people were pouring into the street. “Oh my God!” exclaimed Ben Lee, the firm’s general counsel. “There’s a fire.” “Or worse,” Smarten said quietly. Just a month earlier he had attended a citywide meeting convened by the mayor to discuss emergency response plans. It had seemed so abstract then: Experts had talked about everything from hurricanes to pandemic flu to, yes, a subway bombing. No one seemed to really believe that Boston was a major terrorist target—snow emergency routes and swine flu containment tactics had been the order of the...
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...John; I am waiting? I totally forgot everything about meeting up with him before school! I quickly dumbed the rest of my stuff down the bag, and went outside. The stone filled yard was cracking under my white new shoes. At my way down the street, I received a new message; should I go without you? I choose to ignore it. I was only a few blocks away from him anyway. Just a moment after I got another one saying; Closet. I did not understand that one. Was this supposed to be some kind of bad joke? I arrived at John’s house about 7:30am. When the message copied itself. Closet. I did not know the number it came from. John helped me looking it up. However, no one owned that number. There was not even an IP-Address showed. The cold word was teasing me. John told me to ignore it, that it possibly only was some random 10 year old messing around with me. When we arrived at the school, it seemed to be a quite normal day. However, something did not feel right. Like that feeling, you get when someone is watching you all the time. I felt stalked. The goosebumps was slowly starting to catch up. We walked down the hallway. I was not paying attention to what John was saying. Nevertheless, his lips was moving. The crowd around me slowly started to kick in my nerves. All the voices. I was hearing it everywhere! Closet. It repeated itself in every conversation. I began to walk faster. John tried to keep up. I somehow outran him. I am all alone now… I did not know what to do. Therefore, I collapsed...
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...tests such as the Augmented Dickey Fuller test and a panel unit root test. Additionally the existence of random walk for these stock markets has also been examined through the Jarque-Bera statistic. The results indicate information inefficiency in the time period under study for all indices. Investors can therefore predict future prices on the basis of historical information, and receive excessive returns. The results have implications for developing economies wherein the government has to ensure that all asset related information be made public, to curb state interference. Introduction The concept of Efficient Market Hypothesis (EMH) holds special importance in the field of Finance, especially Capital markets. This hypothesis postulates that markets are informationally efficient. This asserts that the price of any security will fully reflect all the information that is available to the investors. That being said, one cannot consistently achieve returns that are excess of the average market returns on a risk-adjusted basis, with information available at the time of investment. First developed separately by Eugene F. Fama and Paul A. Samuelson, the concept assumes that the investors need not be rational. In an efficient market, investors may either overreact or under react to newly available information. The investor’s reactions are random, such that the price changes are random as well....
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...The Federal Interest Rate and How it Effects Business Interest is the cost of borrowing money. You pay it in almost every facet of life and business, from taking out a home mortgage, to credit card use, to equipment loans and lines of credit. The rate that you pay or the percentage is not random and is directly correlated to the Federal Reserve Bank’s (The Fed) interest rate. The Fed’s interest rate has an endless effect on how the economy operates and how business is done throughout the world. This effect not only has a direct impact on the stock and bond markets but has an even greater effect on how business operations make decisions and progress in our society. Monetary policy in the United States has been and always will be one of the most important topics in politics that we have as a nation. The effect that inflation has upon society is the greatest threat to wealth management and stability that we face. This interest rate or more specifically, the monetary policy used by the Fed is what drives business and commerce. The effect of the Federal interest rate to not only create opportunity but have the ability to drive industry up or down depending on the amount of money banks have to lend to small businesses and individuals is profound. Every politician will at some point or another, state that “Small Business is what drives the American Economy!” This is not just rhetoric but proven by the amount of jobs and income generated from small business. According to the...
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