6.3. Market Efficiency and Investment Strategies Flashcards Preview

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Flashcards in 6.3. Market Efficiency and Investment Strategies Deck (2)
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1
Q

Different definitions of earnings surprise.

A

• Standardized unexpected earnings (SUE)
- Difference between the earnings of the current period and the year before
- Only exact if market is weakly efficient
• Forecast error
- Difference between announced and expected earnings

Buying stocks with better than expected earnings yields in abnormal returns which questions semi-strong market efficiency

2
Q

Momentum Strategy

A
  • Buy the 10 % of stocks that performed best last period
  • sell short 10 % of stocks that performed worst last period
  • Rebalance every period

Yields in abnormal returns which questions the weak form of market efficiency