Investment banking - 1

Efficient MarketsChapter 13: 6, 8, 13, 18, 23

I. Efficient Market Hypothesis

Weak form (random walk): Prices reflect past prices; chartism(technical analysis) is useless).

Semistrong form: Prices reflect all public information; most financialanalysis is useless.

Strong form: Prices reflect all that is knowable; nobody consistentlymakes superior profits.

Testing the efficient market hypothesis

Stock splits

“January Effect”

Financing Implications

Choice of accounting methodsTiming of securities salesPrice pressure from sale of securities