Module 7 (Lecture 7)

Question 1

What are the 3 premises of efficient markets?

Answer 1

1. Many investors analyse stocks on their own, all to maximize their profits.
2. News about stocks appears randomly, not in a predictable way.
3. Investors react fast to news, and prices that change quickly, show that.

Question 2

What are the 5 steps in performing an event study?

Answer 2

1. Event definition and sampling.
2. Treatment of confounding effects.
3. Selection of an appropriate model.
4. Test for significance and their power.
5. Moderating analysis.