‘Herd’ implies a social grouping of people, who have similar understanding or perception about anything. Here ‘herd’ implies the people, who have the same viewpoint within the stock market. The above statement briefs that market movements are dependent on individuals. If a person buys a particular stock and he is a popular figure in the community and society, then every individual intends to purchase this stock and this is simply because the first person has bought it, not because of the market value of the stock. “Perhaps 100 people were simply imitating the coin flipping call of some terribly persuasive personality” (Buffett n.d. p. 4). The ‘margin of safety’ principle implies that safety should be ensured while buying stocks. Walter has justified that while dealing in the stock market, it should always be remembered that it is other people’s money which is being handled. Therefore it reinforces the ethics to strongly avert losses while dealing in stocks. It should always be remembered that money is real and therefore should be handled appropriately. If the net worth of a business is $1 and it can be obtained at 40 cents, then it aims to generate profit. In the stock markets risks and rewards are correlated because as the stock grows riskier, more are the returns from this stock. Even though a high risk stock would be able to generate more returns, yet a risky stock can also generate less or nil returns because the stock’s performance is dependent upon its market performance, which is guarded by several principles. Rational pricing is very important in the stock market, as this pricing is needed for fixed income securities and bonds. Rational pricing implies such a type of pricing, which represents that the market price of the assets in the stock market is free of any arbitrage pricing. Eugene Fama has been propounded as the father of the theory of ‘efficient market hypothesis’. Fama stated two theories related to the efficient market hypothesis. The first theory was classifying the markets on the basis of three types of efficiency. Fama classified three forms of efficiency which are as follows: Strong form efficiency Semi strong form efficiency Weak form efficiency The strong form efficiency implies that all information related to the firm is incorporated in the price of the stock of the firm. The strong form tests are concerned with whether investors or investor groups have monopolistic access in determining the price of a stock. The semi strong form tests imply the prices are adjusted according to the information available about the firm in their announcements to the public, such as announcements of annual earnings, the stock splits etc. that the firm has witnessed. The weak form efficiency is such a test, where only the historical prices of stocks have been displayed to the public and no other details about the firm is divulged. Fama describes the market efficiency hypothesis to be very simple, which simply points out that the market price of a stock represents all the vital information about the firm. The second concept, which Fama stated with respect to the efficient market hypothesis, was the concept of market efficiency, which can be rejected only with a rejection of the
Investment Analysis Coursework 2001 This paper is an essay and offering few arguments in acceptance or rejection of the following statement made by Warren E. Buffet. For the purpose this theory or statement has been compared with Eugene Fama’s ‘efficient market hypothesis.’ Introduction: “When the price of a stock can be influenced by a ‘herd’ on Wall Street with prices set at the margin by the most emotional person, or the greediest person, or the most depressed person, it is hard to argue that the market always prices rationally…
In identifying the returns, generally there are some theories which assist investors in picking up a relevant stock as per the investor’s preferences. Fama and French (1993) provided a Three Factor Model (3FM) to analyze the excess stock returns with respect to EMR, SMB and HML, where; EMR = Excess Market Return (Market Returns – Risk-free Returns) SMB = Small Company Returns minus Big Company Returns HML = High Book-to-Market Company Returns minus Low Book-to-Market Company Returns This article analyzes the excess stock returns of 6 companies of S&P/ASX300 which are Gain Corp.
When it comes to product innovation, no business is far behind. Even the financial markets have been a domain of product innovations in the recent past. One such innovation in the highly lucrative financial markets is The Hedge Funds. Hedge Fund refers to “an aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark).” (Investopedia, 2011) The nature of Hedge Fund is different from many other investment setups.
The ability to obtain liquidity is further complicated by the fact that the banks that offer short-term financing are at the same time struggling with reduced capital structure, reduced levels of risk they are willing to undertake, and are reluctant to lend more money.
According to the report organizations have adopted information systems in order to establish efficiency when it comes to the different areas of operations, ranging from the creation of system architectures that provide support for managerial decision-making through DSS to establishing a more highly coordinated supply chain.
Five forces that determine the competitive intensity and attractiveness of a market are bargaining power of customers, bargaining power of suppliers, threat of new entrants, threat of substitute products and intensity of competitive rivalry affecting
e influenced by a ‘herd’ on Wall Street with prices set at the margin by the most emotional person, or the greediest person, or the most depressed person, it is hard to argue that the market always prices rationally. In fact, market prices are frequently nonsensical”
The overall objective of this investment analysis is to long the asset at cheap (by identifying when the stock is undervalued) and then it short it when it reaches target price with the objective of making profit. Markets are made of people and
It is evident that the performance of the stocks is better, but performs dismally compared to other stocks. I checked the portfolio seeing if there are any rebalancing needs that need to be done. I looked at the
Inflation: the coefficient for the inflation is given as -0.61945, this means that there is a negative relationship between inflation and vote and as such for every unit increase in the inflation, the dependent variable (vote) decreases by a factor of 0.61945 and vice
11 pages (2750 words)Essay
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