Essays on Market Efficiency

Investment appraisal and efficient market hypothesis

PART A: Investment Appraisal

Determination of cash flows Calculation of NPV The NPV of the equipment is $298,352. The value is positive implying that the equipment is viable. Under the NPV criterion, a firm should accept an investment whose NPV is more than zero (Chandra, 2014). Therefore, Stream Stop Ltd. Torrent Flood Defences Plc should undertake the project.

Mistakes made within the original proposal

Appraisal technique: The Company made an error in the choice of the method of evaluating the investment. The return on investment uses the net profit in determining the worth of an investment (Röhrich, 2014). Investment analysis should be based ...

As requested, I have examined the current market conditions and business settings in Spain that will hopefully provide you with the significant insights regarding the decision of initiating electric car manufacturing business in Spain. The Spanish automobile industry offers us lucrative prospects not only in manufacturing electric automobiles but also presents us with an opportunity to export our products to over 130 countries around the world.

Spain has a population of 46.4 million people and its GDP stands at $1199 bn. Spain’s GDP is 1.42% as percentage share of the World’s total (World Economic Forum, 2016). Like ...

Introduction

Ideally, if the government left the markets to themselves, there should be a form of market efficiency, only that there is not. Government interventions and rules affect supply and demand of products, so when there are subsidies and quotas, the equilibrium price goes down or up, affecting the quantity of products in the market. On a free market situation, externalities and public goods disrupt the market efficiency, causing market failures. Externalities can be defined as those costs or benefits that are not entirely borne by the market (Library Economics Liberty, 2002). Public goods are services and goods designed for ...

A market is efficient when the stock prices are dependent on all market available information on a given market or stock. When investors either institutional or individual investors invest money into the stock market, the major objective is to more returns on the investment put. The investors don’t just only focus on the profitability performance but also perform much better than the market itself. No investor has an upper hand in predicting the returns on the investment on the stock because it’s not possible to access the information that is not available on the market (Besley and ...

Essay Question: How different investor types impacts Market Efficiency

Individual investors When individuals talk regarding marketing efficiency, they simply refer to the degree to which the aggregate decisions of all participants in financial markets are accurately reflecting the value of companies and their shares at any given time (Allen and Gale, 2000, pp. 236-255). Therefore, it requires the determination of the intrinsic value of the company while providing a constant update to valuations because new information is becoming familiar. Consequently, the more a financial market becomes accurate, it will be able to price securities and the more efficient it is said to be. Thus the principle of the ...

Problems Facing the Firm

Quadriserv Firm aimed at creating a centralized marketplace where the investors could effectively lend as well as borrow securities. In other words, the goal of this company was to modernize the United States equity securities lending market. Nonetheless, the brokerage firms resisted Quadriserv Firm’s innovations. Quadriserv faced a dilemma in deciding whether to make the changes to its systems so as to preserve a number of advantages, which the brokerage firms had in the prevailing marketplace and facilitate their participation in the electronic marketplace, which it was creating or not (Cohen & Malloy, 2011). The changes to Quadriserv Firm’ ...

**Business 4465**

Be sure to put your name and student number at the top of the email attachment. Your document must be less than 10 typed pages. Please read the questions carefully. Write all you answers in a word document, label all questions carefully. The best answers are those that answer the questions well and concisely using material within the scope of the course and not irrelevant material from other sources or from the internet. Answers that are beyond the scope of the course will receive no marks. Answers that are not written in the own words of a ...

Risk is defined as uncertainty in broad terms. This uncertainty can be due to a large number of factors, which depend on the type of risk. Some of the common factors which result in this uncertainty can be changes in input parameters, miscalculation of parameters etc. (Kuritzkes, Schuermann, & Weiner, 2002). Risk can result in large and unexpected losses and can really hurt the profitability of companies. However, risk is not always bad and little bit of risk can lead to better financial results. However, the relationship between risk and better results is a lot more complex and depends on ...

Introduction

The sole aim of injecting capital into a stock market it to generate a favorable return on the investment. Many investors not only try gain profitable returns but also try to beat or outperform the market. However, one of the major stock market states that the prices of a particular share or security at a given time fully reflect the available information and data about a specific market or stock. Thus according to this hypothesis, shares and securities prices exclusively respond to the available information in the stock market and since all the participants in the market have equal access to similar information, nobody ...

There are four main market structures namely monopolistic competition, perfect competition, monopoly, and oligopoly. Perfect competition denotes situation where there are many sellers without variation within the product, no influence, or effect on price, and no price tag to exit or enter the market. Monopolistic competition market is the most common category of market structure. Monopolistic competition denotes many sellers with slight price variations within the product, less influence on cost that rely on advertising, and a low entry cost to the market. Oligopoly denotes market structure with few sellers having different products, actual cost of entering the market itself ...

Considering the losing market sales in domestic industry and in order to protect the domestic manufacturers, Indian Government imposed a ban on import on duty free flat panel TV’s. Prior to ban and additional import duty regulation by the Indian Government, leading TV manufacturers, Samsung, LG, Panasonic and Sony were running their production capacity to only 60-70% and were refraining from making additional investment for expanding their capacity courtesy to low demand from domestic consumers. The decreasing domestic demand was a result of underground TV market being run by grey marketers who were being benefitted from duty free import and ...

Part 2:

Introduction The Capital Structure Propositions proposed by Nobel Laureates, Franco Modigliani and Merton Miller has a significant relevance even in the modern day financial theory. The propositions proposed by them are popularly known as MM Propositions which they proved under restrictive set of assumptions to counter the traditional approach of capital theory which states that there is always an optimum mix of capital structure for a firm that assists in attaining maximum value for it. The difference in the traditional approach and MM Propositions will be discussed in detail in the succeeding sections, while now we will explain the propositions ...

Herding: An Introduction

While psychologist call it as Herd behavior, the financial pundits go with the word ‘’ Herding’’. Herding is a behavior trait found in an individual where his investment decisions are decided by the majority. In other words, it refers to instances when the individuals gravitate towards same or similar investment based solely on the fact that the majority of the investors are doing so. Important to note, since decades, financial pundits has claimed that such action of investors where they enter into herding environment, leads to inefficiency of the financial markets by causing large or unsubstantiated sell-offs which have no fundamental ...

Oligopoly is a market structure in which only few firms are having control over market supply and since there are high barriers of entry and exit from the oligopoly market, the existing firms enjoy the monopoly kind position.( Parkin, 2011) Following are some of the salient features of Oligopoly Market: 1. Interdependence: Firms operating under oligopoly are interdependent in the decision making process. The reason for the same is that the number of firms operating and competing in the market are very few and any change in price or output level by one firm will have a direct influence ...

Abstract:

The research paper deals with the Efficient Market Hypothesis(EMH) and the related market anomalies and to find that despite there has been extensive research conducted in support of EMH, why is it possible that investors like Warren Buffet and many others have consistently beaten the market year after year and have made billions in profit and if markets are efficient why does the stock prices deviate from their value. For the purpose of this research, we will include a brief introduction of EMH, existing literature review in support of EMH and will then finally proceed to conduct our analysis ...

Introduction

Investors prefer safer to riskier stocks since it provides a perceived security and there alternative to a risky investment or stock is the incentive in form of higher returns. In depth, the market prices are to be set such that investors expect riskier stocks to deliver higher returns although the higher returns are not to be viewed as dependable since if the risky stocks are to be counted on to deliver higher returns than the safer investments or stocks then they are to be considered not risky like demonstrated (LAOPODIS 2012). This expected high returns are valuated so as to attract ...

1. An efficient market hypothesis which also known as the random walk theorem assumes that the obtaining stock prices completely reflect all the information available about the value of a firm or stock. It proposes that in no way can the excess profits be made on the overall (Clark, et al). It is also given that most investors try to be on a look out for undervalued stocks and securities which are expected to increase in value in the near future, especially securities that are more volatile than others. These investors who include investment managers have believe that they can select ...

In markets and financial analysis, Efficient Market Hypothesis (EMH) that is also popularly known in finance language as the Random Walk Theory is a phenomenon that gives that the current stock prices fully reflect all and any available information or data pertaining to the value of the firm or company. According to this hypothesis, it is assumed that there is no way an earning of excess profits is possible by the investors when this information is used. According to Mendelker. G, Clarke J & Jandik T, the efficient market hypothesis deals with one of the most fundamental and interesting( exciting) issues ...

Analysis of US Corporate Income Tax Reform

A tax system should meet its objective of raising revenue for a government in a manner that meets the principles of equity, efficiency as well as complexity. Consequently, the essence of these principles is to ensure that any tax policy promotes economic growth as well as seeking to improve individuals’ social welfare. However, US corporate tax rate has been one of the highest even in comparison with the other OECD countries hence a need to reform it to meet the above principles as well as serve its key purpose of raising revenue. In this respect, this analysis seeks to analyze and present ...

Introduction

Behavioral finance is essential in the understanding and analysis of systematic market effects of psychological decision procedures. The concept of behavioral finance uses knowledge from anthropology, social sciences and cognitive psychology to analyze the behavior of investors. The theory of behavioral finance is based on the idea that investors act rationally by analyzing all possible or available information before settling on a given decision. Therefore, investment markets are assumed to be efficient, and they give a true reflection of the available public information of security prices. According to Minsky, capitalistic systems are always vulnerable to crises because financial innovation leads to ...

Capital markets are markets in which institutions and individuals buy and sell financial securities. Capital markets channel funds from wealth savers institutions that need funds for long term investments. Capital markets comprise of both the equity and debt markets. Investors participate in the capital market in order to maximize their wealth by buying, holding and selling financial securities in order to take advantage of price fluctuations in the capital market. There are various theories that have been developed to explain the performance of investors’ portfolio. One of the dominant theories is the efficient market hypothesis. This paper discusses the ...

Introduction

According to Fama (1970), market efficiency refers to “a market in which prices always ‘fully reflect’ available information.” In discussing market efficiency, three sets of information are considered and include historical prices, publicly available information, and private information. Market inefficiency therefore refers to a condition in which current prices of common stocks and similar securities do not reflect all the public information about a market. This theory opposes the efficient market hypothesis. Market inefficiency is also used to refer to a market that is not operating efficiently, for example, low-volume stocks traded over the counter represent an inefficient market when contrasted with blue ...

The following paper has been written in order to explain in detail the various principles that are applicable in economics. The paper has been written with the view to make the audience aware of the principles of economics and how they are implemented in a cross section of market. In order to understand the principles, it is important to understand the basic philosophy underlying business practices. The paper is intended to acquaint the audience regarding these ideologies thus understanding economics. Economists estimate billion of dollars being spent by the society due to alcohol and other related problems¹. Misuse of ...

Does the concept of invisible hand play an important role in science?

Science is an explanation of human life by giving evidence of natural phenomena, and human causes in the earth we live in. Sciences are of two types, there are the human sciences and the natural sciences. Human or social sciences focus mainly on human behavior, how they react in different situations and their general lifestyles examples of this include sociology, psychology and law. Natural sciences deals with explaining the existence of nature that is beyond human creation, for example physics, and chemistry. Science is based on explaining the universe by use of testable explanations and predictions (Feyerabend, Paul ( ...