1、INVESTMENTS | BODIE, KANE, MARCUSCopyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinCHAPTER 11The Efficient Market HypothesisINVESTMENTS | BODIE, KANE, MARCUS Maurice Kendall (1953) found no predictable pattern in stock prices. Prices are as likely to go up as to
2、go down on any particular day. How do we explain random stock price changes?Efficient Market Hypothesis (EMH)INVESTMENTS | BODIE, KANE, MARCUSEfficient Market Hypothesis (EMH) EMH says stock prices already reflect all available information A forecast about favorable future performance leads to favor
3、able current performance, as market participants rush to trade on new information. Result: Prices change until expected returns are exactly commensurate with risk.INVESTMENTS | BODIE, KANE, MARCUSEfficient Market Hypothesis (EMH) New information is unpredictable; if it could be predicted, then the p
4、rediction would be part of todays information. Stock prices that change in response to new (unpredictable) information also must move unpredictably. Stock price changes follow a random walk.INVESTMENTS | BODIE, KANE, MARCUSFigure 11.1 Cumulative Abnormal Returns Before Takeover Attempts: Target Comp
5、aniesINVESTMENTS | BODIE, KANE, MARCUSFigure 11.2 Stock Price Reaction to CNBC ReportsINVESTMENTS | BODIE, KANE, MARCUS Information: The most precious commodity on Wall Street Strong competition assures prices reflect information. Information-gathering is motivated by desire for higher investment re
6、turns. The marginal return on research activity may be so small that only managers of the largest portfolios will find them worth pursuing.EMH and CompetitionINVESTMENTS | BODIE, KANE, MARCUS Weak Semi-strong StrongVersions of the EMHINVESTMENTS | BODIE, KANE, MARCUS Technical Analysis - using price
7、s and volume information to predict future pricesSuccess depends on a sluggish response of stock prices to fundamental supply-and-demand factors.Weak form efficiency Relative strength Resistance levelsTypes of Stock AnalysisINVESTMENTS | BODIE, KANE, MARCUSTypes of Stock Analysis Fundamental Analysi
8、s - using economic and accounting information to predict stock prices Try to find firms that are better than everyone elses estimate. Try to find poorly run firms that are not as bad as the market thinks.Semi strong form efficiency and fundamental analysisINVESTMENTS | BODIE, KANE, MARCUS Active Man
9、agement An expensive strategy Suitable only for very large portfolios Passive Management: No attempt to outsmart the market Accept EMH Index Funds and ETFs Very low costsActive or Passive ManagementINVESTMENTS | BODIE, KANE, MARCUSEven if the market is efficient a role exists for portfolio managemen
10、t:DiversificationAppropriate risk levelTax considerationsMarket Efficiency & Portfolio ManagementINVESTMENTS | BODIE, KANE, MARCUSResource Allocation If markets were inefficient, resources would be systematically misallocated. Firm with overvalued securities can raise capital too cheaply. Firm with
11、undervalued securities may have to pass up profitable opportunities because cost of capital is too high. Efficient market perfect foresight market INVESTMENTS | BODIE, KANE, MARCUS Empirical financial research enables us to assess the impact of a particular event on a firms stock price. The abnormal
12、 return due to the event is the difference between the stocks actual return and a proxy for the stocks return in the absence of the event.Event StudiesINVESTMENTS | BODIE, KANE, MARCUSReturns are adjusted to determine if they are abnormal.Market Model approach:a. rt = a + brmt + et(Expected Return)b
13、. Excess Return = (Actual - Expected)et = rt - (a + brMt)How Tests Are StructuredINVESTMENTS | BODIE, KANE, MARCUS Magnitude Issue Only managers of large portfolios can earn enough trading profits to make the exploitation of minor mispricing worth the effort. Selection Bias Issue Only unsuccessful i
14、nvestment schemes are made public; good schemes remain private. Lucky Event IssueAre Markets Efficient?INVESTMENTS | BODIE, KANE, MARCUSWeak-Form Tests Returns over the Short HorizonMomentum: Good or bad recent performance continues over short to intermediate time horizons Returns over Long Horizons
15、Episodes of overshooting followed by correctionINVESTMENTS | BODIE, KANE, MARCUSPredictors of Broad Market Returns Fama and FrenchAggregate returns are higher with higher dividend ratios Campbell and ShillerEarnings yield can predict market returns Keim and StambaughBond spreads can predict market r
16、eturnsINVESTMENTS | BODIE, KANE, MARCUS P/E Effect Small Firm Effect (January Effect) Neglected Firm Effect and Liquidity Effects Book-to-Market Ratios Post-Earnings Announcement Price DriftSemistrong Tests: AnomaliesINVESTMENTS | BODIE, KANE, MARCUSFigure 11.3 Average Annual Return for 10 Size-Base
17、d Portfolios, 1926 2008INVESTMENTS | BODIE, KANE, MARCUSFigure 11.4 Average Return as a Function of Book-To-Market Ratio, 19262008INVESTMENTS | BODIE, KANE, MARCUSFigure 11.5 Cumulative Abnormal Returns in Response to Earnings AnnouncementsINVESTMENTS | BODIE, KANE, MARCUSStrong-Form Tests: Inside I
18、nformation The ability of insiders to trade profitability in their own stock has been documented in studies by Jaffe, Seyhun, Givoly, and Palmon SEC requires all insiders to register their trading activityINVESTMENTS | BODIE, KANE, MARCUSInterpreting the AnomaliesThe most puzzling anomalies are pric
19、e-earnings, small-firm, market-to-book, momentum, and long-term reversal.Fama and French argue that these effects can be explained by risk premiums.Lakonishok, Shleifer, and Vishney argue that these effects are evidence of inefficient markets.INVESTMENTS | BODIE, KANE, MARCUSFigure 11.6 Returns to S
20、tyle Portfolio as a Predictor of GDP Growth INVESTMENTS | BODIE, KANE, MARCUSInterpreting the Evidence Anomalies or data mining?Some anomalies have disappeared.Book-to-market, size, and momentum may be real anomalies.INVESTMENTS | BODIE, KANE, MARCUSInterpreting the Evidence Bubbles and market effic
21、iencyPrices appear to differ from intrinsic values.Rapid run up followed by crashBubbles are difficult to predict and exploit.INVESTMENTS | BODIE, KANE, MARCUSStock Market Analysts Some analysts may add value, but:Difficult to separate effects of new information from changes in investor demandFindin
22、gs may lead to investing strategies that are too expensive to exploitINVESTMENTS | BODIE, KANE, MARCUSMutual Fund Performance The conventional performance benchmark today is a four-factor model, which employs:the three Fama-French factors (the return on the market index, and returns to portfolios ba
23、sed on size and book-to-market ratio) plus a momentum factor (a portfolio constructed based on prior-year stock return).INVESTMENTS | BODIE, KANE, MARCUSFigure 11.7 Estimates of Individual Mutual Fund Alphas, 1993 - 2007INVESTMENTS | BODIE, KANE, MARCUS Consistency, the “hot hands” phenomenon Carhar
24、t weak evidence of persistency Bollen and Busse support for performance persistence over short time horizons Berk and Green skilled managers will attract new funds until the costs of managing those extra funds drive alphas down to zero.Mutual Fund PerformanceINVESTMENTS | BODIE, KANE, MARCUSFigure 1
25、1.8 Risk-adjusted performance in ranking quarter and following quarterINVESTMENTS | BODIE, KANE, MARCUSSo, Are Markets Efficient? The performance of professional managers is broadly consistent with market efficiency. Most managers do not do better than the passive strategy. There are, however, some notable superstars: Peter Lynch, Warren Buffett, John Templeton, George Soros
