Corporate Finance Ch. 13
description
Transcript of Corporate Finance Ch. 13
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EFFICIENT CAPITAL MARKETS AND BEHAVIORALCHALLENGES
Chapter 13
Copyright 2014 McGraw-Hill Education. All rights rsr!d. "o rproduction or distri#ution without th prior writtn consnt o$ McGraw-Hill Education.
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KEY CONCEPTS AND SKILLS
Artic!ate the i"p#rta$ce #% capita! "ar&ete%%icie$c'
De%i$e the %#r"( #% e%%icie$c'
K$#) the e"pirica! te(t( #% "ar&et e%%icie$c' De(cri*e the i"p!icati#$( #% e%%icie$c' %#r
c#rp#rate %i$a$ce "a$a+er(
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CHAPTER O,TLINE
13-1 A De(cripti#$ #% E%%icie$t Capita! Mar&et(
13-. The Di%%ere$t T'pe( #% E%%icie$c'
13-3 The E/i0e$ce13- The Beha/i#ra! Cha!!e$+e t# Mar&et
E%%icie$c'
13-2 E"pirica! Cha!!e$+e( t# Mar&et E%%icie$c'
13- Re/ie)i$+ the Di%%ere$ce(
13-4 I"p!icati#$( %#r C#rp#rate Fi$a$ce
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13-1 A DESCRIPTION OF EFFICIENTCAPITAL MARKETS
A$ efficientcapita! "ar&et i( #$e i$ )hich(t#c& price( %!!' re%!ect a/ai!a*!ei$%#r"ati#$-
The EMH ha( i"p!icati#$( %#r i$/e(t#r( a$0%ir"(-
Si$ce i$%#r"ati#$ i( re%!ecte0 i$ (ecrit'price( 5ic&!'6 &$#)i$+ i$%#r"ati#$ when it isreleased0#e( a$ i$/e(t#r !itt!e +##0-
Fir"( (h#!0 e7pect t# recei/e the %air /a!e%#r (ecritie( that the' (e!!- Fir"( ca$$#tpr#%it %r#" %##!i$+ i$/e(t#r( i$ a$ e%%icie$t"ar&et-
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FO,NDATIONS OF MARKETEFFICIENCY
I$/e(t#r Rati#$a!it'
I$0epe$0e$ce #% e/e$t(
Ar*itra+e
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STOCK PRICE REACTIONS
'toc()ric
-30 -20 -10 0 *10 *20 *30
+ays #$or ,- and
a$tr ,* announcnt
E$$icint ar(t
rspons to /good nws
!rraction to /good
nws with r!rsion
+layd
rspons to
/good nws
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STOCK PRICE REACTIONS
'toc()ric
-30 -20 -10 0 *10 *20 *30
+ays #$or ,- and
a$tr ,* announcnt
E$$icint ar(t
rspons to /#ad nws
!rraction to /#ad
nws with r!rsion
+laydrspons to
/#ad nws
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13-. THE DIFFERENT TYPESOF EFFICIENCY
8ea& F#r"
Secrit' price( re%!ect a!! hi(t#rica! i$%#r"ati#$-
Se"i(tr#$+ F#r"
Secrit' price( re%!ect a!! p*!ic!' a/ai!a*!e i$%#r"ati#$-
Str#$+ F#r"
Secrit' price( re%!ect a!! i$%#r"ati#$9p*!ic a$0 pri/ate-
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8EAK FORM MARKET EFFICIENCY
Secrit' price( re%!ect a!! i$%#r"ati#$ %#$0 i$pa(t price( a$0 /#!"e-
I% the )ea& %#r" #% "ar&et e%%icie$c' h#!0(6
the$ tech$ica! a$a!'(i( i( #% $# /a!e-
Si$ce (t#c& price( #$!' re(p#$0 t# newi$%#r"ati#$6 )hich *' 0e%i$iti#$ arri/e(ra$0#"!'6 (t#c& price( are (ai0 t# %#!!#) a
ra$0#" )a!&-
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8HY TECHNICAL ANALYSIS FAILS
'
toc(
)ric
5i
6n!stor #ha!ior tnds to liinat any pro$itopportunity associatd with stoc( pric pattrns.
6$ it wr possi#l to a(
#ig ony siply #y
$inding /th pattrn in th
stoc( pric o!nts7
!ryon would do it7 and
th pro$its would #
coptd away.
'll
'll
8uy
8uy
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SEMISTRONG FORM MARKETEFFICIENCY
Secrit' price( re%!ect a!! p*!ic!'a/ai!a*!e i$%#r"ati#$-
P*!ic!' a/ai!a*!e i$%#r"ati#$i$c!0e(: Hi(t#rica! price a$0 /#!"e i$%#r"ati#$
P*!i(he0 acc#$ti$+ (tate"e$t(
I$%#r"ati#$ %#$0 i$ a$$a! rep#rt(
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STRONG FORM MARKETEFFICIENCY
Secrit' price( re%!ect a!! i$%#r"ati#$9p*!ic a$0 pri/ate-
Str#$+ %#r" e%%icie$c' i$c#rp#rate()ea& a$0 (e"i(tr#$+ %#r" e%%icie$c'-
Str#$+ %#r" e%%icie$c' (a'( thatanythingperti$e$t t# the (t#c& a$0&$#)$ t# at !ea(t #$e i$/e(t#r i(a!rea0' i$c#rp#rate0 i$t# the(ecrit';( price-
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INFORMATION SETS
All in$orationrl!ant to a stoc(
6n$oration st
o$ pu#licly a!aila#lin$oration
6n$orationst o$
past prics
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8HAT THE EMH DOES ANDDOESNOT SAY
I$/e(t#r( ca$ thr#) 0art( t# (e!ect (t#c&(- Thi( i( a!"#(t6 *t $#t 5ite6 tre-
O$ a/era+e a$ i$/e(t#r )i!! $#t *e a*!e t# achie/e a$
a*$#r"a! #r e7ce(( retr$ A$ i$/e(t#r "(t (ti!! 0eci0e h#) ri(&' a p#rt%#!i# he )a$t(
*a(e0 #$ ri(& a/er(i#$ a$0 e7pecte0 retr$-
Price( are ra$0#" #r $ca(e0- Price( re%!ect i$%#r"ati#$-
The price CHANGE i( 0ri/e$ *' newi$%#r"ati#$6 )hich *'0e%i$iti#$ arri/e( ra$0#"!'-
There%#re6 %i$a$cia! "a$a+er( ca$$#t
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8HAT THE EMH DOES ANDDOESNOT SAY
St#c&h#!0er Di(i$tere(t Ma$' are (&eptica! that the "ar&et i(e%%icie$t *eca(e #$!' a %racti#$ #% (hare(
tra0e each 0a' Bt6 a( !#$+ a( tra0er( )h# *e!ie/e there i(a rea(#$ t# i$cr the c#(t #% a tra0eparticipate i$ the "ar&et it re"ai$( e%%icie$t
Frther6 (t#c& price re%!ect( a/ai!a*!ei$%#r"ati#$ >i-e-6 i( e%%icie$t? a( !#$+ a( a$"*er #% i$tere(te0 tra0er( (e thea/ai!a*!e i$%#r"ati#$
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13- THE EVIDENCE
The rec#r0 #$ the EMH i( e7te$(i/e6 a$06i$ !ar+e "ea(re6 it i( rea((ri$+ t#a0/#cate( #% the e%%icie$c' #% "ar&et(-
St0ie( %a!! i$t# three *r#a0 cate+#rie(:
1- Are cha$+e( i$ (t#c& price( ra$0#"@ Are therepr#%ita*!e
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ARE CHANGES IN STOCK PRICESRANDOM@
S"a!! (eria! c#rre!ati#$ c#e%%icie$t( (pp#rt)ea& %#r" e%%icie$c' a$0 ra$0#"$e((
Ca$ )e rea!!' te!!@ Ma$' p('ch#!#+i(t( a$0 (tati(ticia$( *e!ie/e that
"#(t pe#p!e 0# $#t $0er(ta$0 )hat ra$0#"$e((!##&( !i&e
Pe#p!e c!ai"i$+ t# (ee patter$( i$ (t#c& price"#/e"e$t( are pr#*a*!' (eei$+ #ptica! i!!(i#$(-
A "atter #% 0e+ree E/e$ i% )e ca$ (p#t patter$(6 )e $ee0 t# ha/e
retr$( that *eat #r tra$(acti#$( c#(t(-
Ra$0#" (t#c& price cha$+e( (pp#rt )ea&%#r" e%%icie$c'
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8HAT PATTERN DO YO, SEE@
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EVENT ST,DIES
E/e$t St0ie( are #$e t'pe #% te(t #% the(e"i(tr#$+ %#r" #% "ar&et e%%icie$c'- Reca!!6 thi( %#r" #% the EMH i"p!ie( that price(
(h#!0 re%!ect a!! p*!ic!' a/ai!a*!e i$%#r"ati#$-T# te(t thi(6 e/e$t (t0ie( e7a"i$e price(a$0 retr$( #/er ti"e9partic!ar!' ar#$0the arri/a! #% $e) i$%#r"ati#$-
Te(t %#r e/i0e$ce #% $0erreacti#$6#/erreacti#$6 ear!' reacti#$6 #r 0e!a'e0reacti#$ ar#$0 the e/e$t-
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EVENT ST,DIES
Retr$( are a0(te0 t# 0eter"i$e i% the' areabnormal *' ta&i$+ i$t# acc#$t )hat the re(t #%the "ar&et 0i0 that 0a'-
TheAbnormal Return#$ a +i/e$ (t#c& %#r apartic!ar 0a' ca$ *e ca!c!ate0 *' (*tracti$+the "ar&et;( retr$ #$ the (a"e 0a' >RM? %r#"
the acta! retr$ >R)#$ the (t#c& %#r that 0a':
AR R RM
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EVENT ST,DIES: DIVIDENDOMISSIONS
E$$icint ar(t
rspons to /#ad nws
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EVENT ST,DY RES,LTS
O/er the 'ear(6 e/e$t (t0' "eth#0#!#+'ha( *ee$ app!ie0 t# a !ar+e $"*er #%e/e$t( i$c!0i$+: Di/i0e$0 i$crea(e( a$0 0ecrea(e( Ear$i$+( a$$#$ce"e$t(
Mer+er( Capita! (pe$0i$+ Ne) i((e( #% (t#c&
The (t0ie( +e$era!!' (pp#rt the /ie)that the "ar&et i( (e"i(tr#$+ %#r"
e%%icie$t- St0ie( (++e(t that "ar&et( "a' e/e$ha/e (#"e %#re(i+ht i$t# the %tre6 i-e-6$e)( te$0( t# !ea& #t i$ a0/a$ce #% p*!ica$$#$ce"e$t(-
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THE RECORD OF M,T,AL F,NDS
I% the "ar&et i( (e"i(tr#$+ %#r" e%%icie$t6 the$$# "atter )hat p*!ic!' a/ai!a*!e i$%#r"ati#$"ta! %$0 "a$a+er( re!' #$ t# pic& (t#c&(6their a/era+e retr$( (h#!0 *e the (a"e a(
th#(e #% the a/era+e i$/e(t#r i$ the "ar&et a( a)h#!e-
8e ca$ te(t e%%icie$c' *' c#"pari$+ theper%#r"a$ce #% pr#%e((i#$a!!' "a$a+e0 "ta!
%$0( )ith the per%#r"a$ce #% a "ar&et i$0e7-
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THE RECORD OF M,T,AL F,NDS
5a(n $ro 9u#os )astor and :o#rt ;. 'ta#augh7 /Mutual ;und )r$oranc and 'ingly
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THE STRONG FORM OF THE EMH
O$e +r#p #% (t0ie( #% (tr#$+ %#r" "ar&ete%%icie$c' i$/e(ti+ate( i$(i0er tra0i$+-
A $"*er #% (t0ie( (pp#rt the /ie) that i$(i0er
tra0i$+ i( a*$#r"a!!' pr#%ita*!e- Th(6 (tr#$+ %#r" e%%icie$c' 0#e( $#t (ee" t# *e
(*(ta$tiate0 *' the e/i0e$ce-
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13-2 THE BEHAVIORAL CHALLENGE
Rati#$a!it'
Pe#p!e are $#t a!)a'( rati#$a!-
Ma$' i$/e(t#r( %ai! t# 0i/er(i%'6 tra0e t## "ch6
a$0 (ee" t# tr' t# "a7i"ie ta7e( *' (e!!i$+)i$$er( a$0 h#!0i$+ !#(er(-
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THE BEHAVIORAL CHALLENGE
I$0epe$0e$t De/iati#$( %r#" Rati#$a!it'
P('ch#!#+i(t( ar+e that pe#p!e 0e/iate %r#"rati#$a!it' i$ pre0icta*!e )a'(:
Repre(e$tati/e$e((: 0ra)i$+ c#$c!(i#$( %r#" t## !itt!e0ata
Thi( ca$ !ea0 t# ***!e( i$ (ecrit' price(-
C#$(er/ati(": pe#p!e are t## (!#) i$ a0(ti$+ their*e!ie%( t# $e) i$%#r"ati#$-
Secrit' price( (ee" t# re(p#$0 t## (!#)!' t# ear$i$+((rpri(e(-
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THE BEHAVIORAL CHALLENGE
Ar*itra+e Spp#(e that '#r (peri#r6 rati#$a!6 a$a!'(i( (h#)(
that c#"pa$' ABC i( #/erprice0-
Ar*itra+e )#!0 (++e(t that '# (h#!0 (h#rt the(hare(-
A%ter the re(t #% the i$/e(t#r( c#"e t# their (e$(e(6'# "a&e "#$e' *eca(e '# )ere ("art e$#+ht#
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13- EMPIRICAL CHALLENGES
Li"it( t# Ar*itra+e
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EMPIRICAL CHALLENGES
Cra(he( O$ Oct#*er 16 146 the (t#c& "ar&et 0r#ppe0 *et)ee$
. a$0 .2 perce$t #$ a M#$0a' %#!!#)i$+ a )ee&e$00ri$+ )hich !itt!e (rpri(i$+ $e)( )a( re!ea(e0-
A 0r#p #% thi( "a+$it0e %#r $# appare$t rea(#$ i(i$c#$(i(te$t )ith "ar&et e%%icie$c'-
B**!e( C#$(i0er the tech (t#c& ***!e #% the !ate 1(-
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13- REVIE8ING THE DIFFERENCES
Fi$a$cia! Ec#$#"i(t( ha/e (#rte0 the"(e!/e(i$t# three ca"p(:
1- Mar&et e%%icie$c'
.- Beha/i#ra! %i$a$ce3- Th#(e )h# a0"it that the' 0#$;t &$#)
Thi( i( perhap( the "#(t c#$te$ti#( area i$ the%ie!0-
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13- IMPLICATIONS FORCORPORATE FINANCE
Beca(e i$%#r"ati#$ i( re%!ecte0 i$ (ecrit'price( 5ic&!'6 i$/e(t#r( (h#!0 #$!' e7pect t##*tai$ a $#r"a! rate #% retr$-
A)are$e(( #% i$%#r"ati#$ )he$ it i( re!ea(e0 0#e( a$
i$/e(t#r !itt!e +##0- The price a0(t( *e%#re thei$/e(t#r ha( ti"e t# act #$ it-
Fir"( (h#!0 e7pect t# recei/e the %air /a!e %#r(ecritie( that the' (e!!-
Fair"ea$( that the price the' recei/e %#r the (ecritie(the' i((e i( the pre(e$t /a!e-
Th(6 /a!a*!e %i$a$ci$+ #pp#rt$itie( that ari(e %r#"%##!i$+ i$/e(t#r( are $a/ai!a*!e i$ e%%icie$t "ar&et(-
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IMPLICATIONS FOR CORPORATEFINANCE
The EMH ha( three i"p!icati#$( %#rc#rp#rate %i$a$ce:
1- The price #% a c#"pa$';( (t#c& ca$$#t *e
a%%ecte0 *' a cha$+e i$ acc#$ti$+-.- Fi$a$cia! "a$a+er( ca$$#t
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8HY DOESN;T EVERYBODY BELIEVE@
There are #ptica! i!!(i#$(6 "ira+e(6 a$0appare$t patter$( i$ chart( #% (t#c&"ar&et retr$(-
The trth i( !e(( i$tere(ti$+- There i( (#"e e/i0e$ce a+ai$(t "ar&ete%%icie$c': Sea(#$a!it'
S"a!! /er(( !ar+e (t#c&( Va!e /er(( +r#)th (t#c&(
The te(t( #% "ar&et e%%icie$c' are )ea&-
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J,ICK J,I
De%i$e capita! "ar&et e%%icie$c'-
8hat are the three %#r"( #%e%%icie$c'@
8hat 0#e( the e/i0e$ce (a're+ar0i$+ the e%%icie$c' #% capita!"ar&et(@
8hat are the i"p!icati#$( %#rc#rp#rate %i$a$ce "a$a+er(@