investment and portfolio management slides by ihtsham ali
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market efficency hypotheses..uploaded by ihtsham ali,University of south asia, Pakistan.further details [email protected]TRANSCRIPT
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AIMS Members Amina Ejaz (Leader) Maooz Ullah Ihtsham Ali Sehrish Tbassum
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Market Efficiency Hypothesis
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Outline Introduction History Efficient market hypothesis and its forms Conclusion
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Introduction Model to measure the Future value of stock
price. Also said that a investment theory states
that it is impossible to“ Beat the market” Academically a large body of evidence in
support of MEH. Modern Controversial and Disputed
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Historical Background French Broker, Louis Bachelier, French
Mathematicians told “Theory of speculation” Ignored till 1950s Alfred Cowles suggest to professionals 1960 University of Chicago published
properly 1980s Firth studied the UK stock market and
aproved
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Forms of MEH Weak Form Semi Strong Form Strong Form
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Weak Form The weak form of the EMH states that it is
impossible to predict future stock prices by analyzing prices from the past• The current price is a fair one that considers
any information contained in the past price data
• Charting techniques or of no use in predicting stock prices
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22-07-2013 KSE
Stock Status current price opening price
NBP -0.65 54.65 55.3
NIB -0.03 2.51 2.54
MCB -3.18 273.75 276
BOP -0.05 15.02 15.07
ABL -0.33 16.33 16.66
Soneri -0.17 8.09 8.26
UBL -0.77 136.37 137.14
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22-07-2013 ISE (05:42 pm)
Stock Status current price opening price
BOP -0.01 14.2 15.26
MCB -0.2 276.3 276.5
UBL -0.77 - 136.37
NBP -0.7 54.69 55.39
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22-07-2013 LSE
Stock Status current price
BOP -.01 14.97
NBP -.07 54.69
NIB -0.03 2.51
SILK BANK 0.01 2.40
ASKARI 0.033 16.37
BANK Alfalah -.25 20.90
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Weak FormExample
Solution: According to the weak form of the EMH, neither stock is a better buy, since the current price already reflects all past information.
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Charting People who study charts are technical
analysts or chartists• Chartists look for patterns in a sequence of
stock prices
• Many chartists have a behavioral element
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Semi-Strong Form The semi-strong form of the EMH states
that security prices fully reflect all publicly available information• E.g., past stock prices, economic reports,
brokerage firm recommendations, investment advisory letters, etc.
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Semi-Strong Form (cont’d) Academic research supports the semi-strong
form of the EMH by investigating various corporate announcements, such as:• Stock splits• Cash dividends• Stock dividends
This means investor are seldom going to beat the market by analyzing public news
November 2007 Mushraf declared emergency.
Banking weight in Index move from 36.47 to 32.39%
Trust deteriorated of customer 24th January NBP share price 48Rs. 29th January NBP share price 51Rs. 29th January appointment of Dr. Asif in
NBP as new head
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Online Bank Hacking HBL 11th July Askari Bank Limited 17th July MCB 18th July Soneri Bank 20th July Tameer Bank 22 July 0.2% Down over all banking sector
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NIB (17 july, 2013) -4.5NBP -3.5Bank Alfalah -2.1
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Strong Form The strong form of the EMH states that
security prices fully reflect all public and private information
This means even corporate insiders cannot make abnormal profits by using inside information• Inside information is information not available
to the general public
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Conclusion • Not rely only technical analysis • Market effects from the other then economic
factors • Clear picture of stock future • Lay man have no any place in market • Strong form did not exist in market • Seller must be rational
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