week 6 notes

Question 1

beta risk

Answer 1

risk that cannot be diversified away.

Question 2

market hypothesis

Answer 2

states how prices are reflected in securities.

Question 3

weak form

Answer 3

all historical price information is reflected in prices. this is very difficult and almost impossible.

Question 4

semi-strong form

Answer 4

all publicly available information is reflected in prices. thus, there is a lot of information.

Question 5

strong form

Answer 5

all information is reflected in prices.

Question 6

implied return

Answer 6

method of estimate the market risk premium. we assume the growing perpetuity model to determine the market risk premium and solve it for the discount rate that is consistent with the current level of the index. it heavily depends on the growth rate assumption.

Question 7

public, easily interpretable information

Answer 7

found in news reports and financial statements, etc. stock prices react instantaneously to such news.

Question 8

specialised or difficult-to-interpret information

Answer 8

information known by a small number of investors. they may profit temporarily from this information. as they trade, prices move and the profit disappears. over time, the prices reflect this information as well.

Question 9

private information

Answer 9

information only the firm has. this is not reflected in stock prices.