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Event study - Essay Example

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Ph.D.
Author : jennievolkman
Essay
Finance & Accounting
Pages 8 (2008 words)

Summary

Event Study for Efficient Market Hypothesis Ex-dividend Data Finance and Accounting Introduction Today, every media source provides us with schemes in the stock market to get rich quick. Just follow this strategy, or here’s the hottest new stock guaranteed to make money…

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Event study

A plausible explanation for these findings is that changes in the optimal dividend and debt levels stem from changes in, expected cash flows, and thus, signal a change in firm value. Efficient Market Hypothesis Researchers have developed a hypothesis known as the Efficient Market Hypothesis (EMH) which states that the market prices reflect all information known to the public. Market react to any new information available in the market immediately as reflected in stock prices rather than gradually adjust it. The term ‘efficient market’ was coined by Eugene Fama in 1965. He described an efficient market as a market where at any point in time, actual prices of individual securities already reflect the effects of information based both on events that have already occurred and on events which, as of now, the market expects to take place in the future. The efficient market prices represent the intrinsic value of the securities. The EMH along with the Random Walk Hypothesis (RWH) flies in the face of Wall Street financial analysts. Financial analysts despise even hearing those terms. This is because these hypotheses suggest that there are no future predictions that can be made about how a market will behave. ...
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