A
Avviey
Member
Hi,
I have afew questions to ask:
1)On page5 of Chapter 1, it says,'If insider trading doesnt occur, then the strong form EMH can not hold, as there is then no mechanism by which security prices can incorporate inside information.'
This makes sense as for strong form EMH, market prices incorporate all the information both publicly available and also that available only to insiders. However, what I dont understand here is if inside trading occurs, then it would be possible for the insiders to use this privileged information to obtain higher investment returns,then this shouldnt be strong form EMH?
2)On page 10 of Chapter 1 re the examples of over-reaction to events, no.1 is past porformance-market appears to over-react to past performance. Like making excess profits by selling firms that have performed well recently.Does this mean investors have over-reacted to the frims that have performed well recently but poor past performance by selling the firms? I'm not exactly clear here.
3)On page 11 of Chapter 1 re anomalies. The example of it is small companies effect. It says,'This work showed the out-performanceof small companies in the period 1960-80. However, if a stratgy based on this evidence had been implemented, the investor would have experienced abnormally low returns throughout the 1980s and early 1990s.' Shouldnt it be abnormally high returns given the out-performance? Probably I dont understand this bit.
Sorry for having asked a bunch. Would appreciate alot if someone can help.
I have afew questions to ask:
1)On page5 of Chapter 1, it says,'If insider trading doesnt occur, then the strong form EMH can not hold, as there is then no mechanism by which security prices can incorporate inside information.'
This makes sense as for strong form EMH, market prices incorporate all the information both publicly available and also that available only to insiders. However, what I dont understand here is if inside trading occurs, then it would be possible for the insiders to use this privileged information to obtain higher investment returns,then this shouldnt be strong form EMH?
2)On page 10 of Chapter 1 re the examples of over-reaction to events, no.1 is past porformance-market appears to over-react to past performance. Like making excess profits by selling firms that have performed well recently.Does this mean investors have over-reacted to the frims that have performed well recently but poor past performance by selling the firms? I'm not exactly clear here.
3)On page 11 of Chapter 1 re anomalies. The example of it is small companies effect. It says,'This work showed the out-performanceof small companies in the period 1960-80. However, if a stratgy based on this evidence had been implemented, the investor would have experienced abnormally low returns throughout the 1980s and early 1990s.' Shouldnt it be abnormally high returns given the out-performance? Probably I dont understand this bit.
Sorry for having asked a bunch. Would appreciate alot if someone can help.