Flashcards in Chapter 10 Market Efficiency Deck (8)
How does understanding security valuation help managers?
provides guidelines about how to manage the business on behalf of shareholders
what does the discount rate represent?
shareholder's required rate of return
If market prices reflect the actions of managers then managers must learn what?
what actions they should take in order to fulfill their legal and managerial responsibilities to shareholders
What are the elements of market Efficiency
1. Operational Efficiency
2. Allocational Efficiency
3. Informational Efficiency
what is meant by Operational Efficiency
transaction costs are low
- thereby, enhancing trading of securities
what is meant by allocational efficiency
there are enough securities to efficiently allocate risk
what is meant by informational efficiency
market prices fairly and quickly reflect all available information about the firm and managers' actions