Term
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Definition
Expectations formed from passed experience
Typically a weighted average |
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Term
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Definition
| Using all relevant information available to form an optimal forecast of the future |
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Term
| Efficient Market Hypothesis |
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Definition
| Uses rational expectations to say that all unexploited profit opportunities will be eliminated |
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Term
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Definition
| All historical price info recorded in price (no technical analysis) |
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Term
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Definition
| All publicly know information is reflected in stock price (no fundamental analysis) |
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Term
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Definition
| All information publicly available or not is reflected in stock price (no insider information) |
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Term
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Definition
| Stocks issued by small companies have earned higher risk adjusted returns than other stocks |
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Term
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Definition
| Stock prices tend to rise sharply from December to January |
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Term
| Market Overreaction(excessive volatility) |
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Definition
| Stock Prices Overreact to bad news and good news |
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Term
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Definition
| Stocks with low returns in the past are more likely to do well in the future (reverse is also true) |
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Term
| Capital Asset Pricing Model (CAPM) |
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Definition
1. Individuals are risk adverse and expect to be compensated for assumed risk
2. Two kind of risk, specific (company) and market (vulnerability to market conditions)
3. Specific risk can be eliminated through diversification |
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Term
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Definition
B=0 --> no market risk
B=1 --> index level risk
B>1 --> stock more volatile than market
B<1 --> stock less volatile than market |
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Term
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Definition
Ri = Rf + B(Rm - Rf)
Ri = Rate of return for stock i
Rf = Risk free return
B = Beta of security
Rm = Market rate of return
Rm - Rf = Market risk premium |
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