of possible outcomes -Company-unique risk (unsystematic risk)-is diversifiable. This type of risk can be reduced through diversification. The result of factors that are unique to a particular firm -Market risk (systematic risk)is nondiversifiable. This type of risk cant be diversified away. -Market risk (systematic risk) -results from factors that affect all stocks. -Diversification investing in more than one security to reduce risk -Holding period returns the return an investor would receive
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EFFICIENT MARKETS HYPOTHESIS AND OTHER THEORIES OF PRICING IN FINANCIAL MARKETS Name Course Title/Code Instructor’s Name Date Efficient Markets Hypothesis and other theories of pricing in financial markets Efficient market hypothesis (EMH) is a theory that emerged in the 1960s. It states that it is difficult to predict the market since the price has been set and reflect the current market conditions. It is a disputed and controversial theory. The theory is comparable to other theories of pricing
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known as systematic and unsystematic risk . The systematic risks are market risk which cannot be diversified such as fluctuations in interest rates and recession in the economy .Unsystematic risk are risks associated with an individual stock , it occurs when an investor increases the number of stocks on his portfolio. The unsystematic risk cannot be diversified as it is related an individual stock irrespective to the general market . (Amihud and Lev, 1981). The CAPM was introduced independently by
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based on risk free rate, the expected return rate on the market and beta coefficient of a single portfolio and security. Re = Rf + β [E(Rm) - (Rf)] According to the formula, Re represents the Return on Equity, Rf is for the risk-free rate, E(Rm) denoted to expected rate of return on the market, and β is the beta coefficient and E(Rm) - Rf is the difference among the expected market rate of return and the risk-free rate, is known as the market premium (Phillips, 2007). The total risk of stock is divided
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| |Efficient market |Definition |Prices that are traded in the public financial market, which slowly release| | | |new information there is. | | |Resource you used |(Business Dictonary, 2015) | |Primary versus secondary market |Definition
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From Efficient Markets Theory to Behavioral Finance 1. What does Shiller mean by Behavioral Finance? Behavioral Finance is the collaboration between finance and other social sciences. This field of research is focused on determining the precise degree to which various market forces—including rational analysis of company-specific and macroeconomic fundamentals; human and social psychology; and cultural trends—influence investors’ expectations and determine their level of confidence or fear
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Investor sentiment and anomalies Robert F. Stambaugh, Jianfeng Yu c, Yu Yuan The authors consider that sentiment may partly explain the returns to equity pricing anomalies by combining two concepts. The first concept is that investor sentiment has a market wide component with the potential to affect the stock prices in the same direction at the same time. The second concept concerns about the impediments to short selling like mutual funds being prohibited by their charter or deterrence of individuals
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2014/2015 BAC 815 FINANCIAL MANAGEMENT ASSIGNMENT Instructions: i. Provide detailed information with regard to the questions posed ii. Cite the sources of the information in the last page (references) iii. Your work should be typed MINI CASE Assume that you recently graduated with a degree in finance and have just reported to work as an investment advisor at the brokerage firm of Balik & Kiefer Inc. your first assignment is to explain the nature of the Kenya financial market to Michelle
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Question 1 In the extremely efficient market, where information is fully impounded in prices within minutes of its revelation, if John take the course in business analysis and valuation using financial statements and learn the skills of financial analysis, he will get much more value than he expects. Firstly, if he knows the financial analysis, he can correctly appraise the financial position of the firm and cash flow situation, which will help him better understand the firm, this skill will also
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| |Time value of money |“A dollar received today is worth more than a|Titman, S. Keown, A. J. & . Martin ,J. D. (n.d.). | | |dollar received in the future. Conversely, |Financial Management. Principles and Applications: | | |a dollar received in the future is worth less|Chapter 1: Getting Started: Principles of Finance: 1.4. | | |than a dollar
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