Financial market efficiency (5/5) Anomalies of EMH in Finance A market anomalylinefficiency in a financial market is a price andlor rate of return distortion that seems to contradict the efficient-market hypothesis. 1.the short-run underpricing of Initial Public Offerings(IPOs) 2.small companies have higher returns than that expected, based on the CAPM(small firm effect) 3.on average,stocks have lower(negative)returns on Monday, compared to(positive)returns on other days of the week (Monday effect) 4.stocks have higher returns in January,relative to other months of the year (January effect). 5.long run reversions in returns (overreaction)-buy losers, sell winners; 6.post-earnings announcement drift(PEAD) >6-16 SDUT Chen Gang Spring 2018
Financial market efficiency (5/5) Anomalies of EMH in Finance A market anomaly/inefficiency in a financial market is a price and/or rate of return distortion that seems to contradict the efficient-market hypothesis. 1. the short-run underpricing of Initial Public Offerings (IPOs) 2. small companies have higher returns than that expected, based on the CAPM (small firm effect) 3. on average, stocks have lower (negative) returns on Monday, compared to (positive) returns on other days of the week (Monday effect) 4. stocks have higher returns in January, relative to other months of the year (January effect). 5. long run reversions in returns (overreaction) — buy losers, sell winners; 6. post-earnings announcement drift (PEAD) 6-16 SDUT Chen Gang Spring 2018
Portfolio Theory (1/3) Harry M.Markowitz (1952) The Expected Return of a Portfolio-a weighted average of the expected returns on the individual securities Risk in a Portfolio Context Variance and standard deviation measure the variability of individual stocks. Covariance and correlation measure how two random variables are related. >6-17 SDUT Chen Gang Spring 2018
Portfolio Theory (1/3) Harry M. Markowitz (1952) The Expected Return of a Portfolio — a weighted average of the expected returns on the individual securities Risk in a Portfolio Context Variance and standard deviation measure the variability of individual stocks. Covariance and correlation measure how two random variables are related. 6-17 SDUT Chen Gang Spring 2018