The Efficient Markets Hypothesis

The efficient markets hypothesis has historically been one of the main cornerstones of academic finance research. Proposed by the University of Chicagos Eugene Fama in the 1960s, the general concept of the efficient markets hypothesis is that financial markets are informationally efficient- in other words, that asset prices in financial markets reflect all relevant information about an asset. One implication of this hypothesis is that, since there is no persistent mispricing of assets, it is virtually impossible to consistently predict asset prices in order to beat the market- i.e. generate returns that are higher than the overall market on average without incurring more risk than the market. The intuition behind the efficient markets hypothesis is pretty straightforward- if the market price of a stock or bond was lower than what available information would suggest it should be, investors could (and would) profit (generally via arbitrage strategies) by buying the asset. This increase in demand, however, would push up the price of the asset until it was no longer underpriced. Conversely, if the market price of a stock or bond was higher than what available information would suggest it should be, investors could (and would) profit by selling the asset (either selling the asset outright or short selling an asset that they dont own). In this case, the increase in the supply of the asset would push down the price of the asset until it was no longer overpriced. In either case, the profit motive of investors in these markets would lead to correct pricing of assets and no consistent opportunities for excess profit left on the table. Technically speaking, the efficient markets hypothesis comes in three forms. The first form, known as the weak form (or weak-form efficiency), postulates that future stock prices cannot be predicted from historical information about prices and returns. In other words, the weak form of the efficient markets hypothesis suggests that asset prices follow a random walk and that any information that could be used to predict future prices is independent of past prices. The second form, known as the semi-strong form (or semi-strong efficiency), suggests that stock prices react almost immediately to any new public information about an asset. In addition, the semi-strong form of the efficient markets hypothesis claims that markets dont overreact or underreact to new information. The third form, known as the strong form (or strong-form efficiency), states that asset prices adjust almost instantaneously not only to new public information but also to new private information. Put more simply, the weak form of the efficient markets hypothesis implies that an investor cant consistently beat the market with a model that only uses historical prices and returns as inputs, the semi-strong form of the efficient markets hypothesis implies that an investor cant consistently beat the market with a model that incorporates all publicly available information, and the strong form of the efficient markets hypothesis implies that an investor cant consistently beat the market even if his model incorporates private information about an asset. One thing to keep in mind regarding the efficient markets hypothesis is that it doesnt imply that no one ever profits from adjustments in asset prices. By the logic stated above, profits go to those investors whose actions move the assets to their correct prices. Under the assumption that different investors get to the market first in each of these cases, however, no single investor is consistently able to profit from these price adjustments. (Those investors who were able to always get in on the action first would be doing so not because asset prices were predictable but because they had an informational or execution advantage, which is not really inconsistent with the concept of market efficiency.) The empirical evidence for the efficient markets hypothesis is somewhat mixed, though the strong-form hypothesis has pretty consistently been refuted. In particular, behavioral finance researchers aim to document ways in which financial markets are inefficient and situations in which asset prices are at least partially predictable. In addition, behavioral finance researchers challenge the efficient markets hypothesis on theoretical grounds by documenting both cognitive biases that drive investors behavior away from rationality and limits to arbitrage that prevent others from taking advantage of the cognitive biases (and, by doing so, keeping markets efficient).

Mercutios Death in William Shakespeares Romeo and Juliet

Mercutios Death in William Shakespeares Romeo and Juliet In Romeo and Juliet Mercutio is the faithful friend of Romeo. His death comes as a huge shock to the audience, in Act three, Scene one, when he is brutally murdered by Tybalt, the violent cousin of Juliet. To understand the rest of the statement, one also has to look at the difference between a comedy and a tragedy. Shakespeares plays can be separated into three different categories, the comedy, tragedy and the history. The comedy included amusing characters, with a familiar style of writing, humorous incidents and most importantly a happy ending. In contrast, the tragedy used serious or unhappy characters, a more serious, unnatural†¦show more content†¦The language he uses, puns and innuendoes along with his familiar style show Mercutio as definitely comedy personified. On the other hand, we can learn a lot more about Mercutio from Act one, Scene four, where we see another side of him. Mercutio comes across as being unpredictable and violent, as he changes from being joyful to being angry about dreams. We can see this from the way he speaks, à ¢Ã¢â€š ¬Ã‚ ¦ I talk of dreams, which are the children of an idle brainà ¢Ã¢â€š ¬Ã‚ ¦ The way that Mercutio changes personality suddenly, and how his words seem to become more and more irate and horrible, This is the hag, when maids lie on their backs, that presses them and makes them first to bear, all make him seem erratic and perhaps even frightening. This other side to Mercutio that talks with the powerful, strong metaphorical images in verse is not how we imagine comedy. However, although Mercutio is unpredictable in this scene, he is mainly a witty character, who appeals to the audience greatly with his language used. I therefore believe that he is comedy personified as he is very clever and comical overall. 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Case Study A Brawl in Mickeys Backyard free essay sample

In 1994, the city of Anaheim created a 2.2 square mile entertainment zone that was centered around Disneyland. (Kasindorf, 2007) This law held new development to hotels, shops, restaurants, and theme parks. (Kasindorf, 2007) In 2007, Disney began to fight with developer SunCal over a proposal that would put up housing developments within the 2.2 square miles, some of which would be used for low income housing. Disney claimed that allowing the development would dampen the commercial boom. On the opposite side, SunCal claimed that the true problem for Disney was the affordable housing that would be put in. (Kasindorf, 2007) This particular argument has high stakes for market and nonmarket stakeholders due to Disney being the largest employee in Anaheim. Market stakeholders are those who participate in monetary or economic transactions with a business as it goes about serving its primary purpose. (Lawrence Weber, 2011) The market stakeholders in this case would be SunCal, Disneyland, the employees of Disneyland, and the tourists to Disneyland and Anaheim. We will write a custom essay sample on Case Study: A Brawl in Mickeys Backyard or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page These entities all conduct economic transactions of some type in the course of serving the businesses primary purpose. The building or not building of these housing projects will directly impact them in some monetary fashion. Nonmarket stakeholders are those who are not directly involved with the companies involved in the argument. (Lawrence Weber, 2011) The city council, citizens of Anaheim, media, and lobbyists for affordable housing would be nonmarket stakeholders. They will have a large impact on the outcome of the battle but have no economic transactions with the companies. The city council will be the ones to decide if a vote needs to be held and the citizens will be the ones to vote on the proposed agenda, giving both parties the major say in this case. The media always has some type of stake in the business world as that is how they make their living and their columnists will make their thoughts on the project known. A dialogue between SunCal and its stakeholders could encourage the company to go forward if they really feel that there is a chance at winning the argument and being able to build the housing project. However, the same dialogue could also determine that it would be best to sell their acreage for a profit to tourism businesses and buy property for housing outside of the 2.2 square miles that have been zoned for entertainment. Building the housing within the city but outside of the entertainment zone would still allow close and affordable housing but would promote a positive relationship with Disney and all stakeholders.