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Financial Market Asm Essay

4991 words - 20 pages

Financial MarketsAPC313Prepared by: BUI TRANG NGANStudent ID: 139126514/1Submission Date: 6th Jan, 2014_________________________________________________________________PART A. MARKET EFFICIENCY AND EVALUATIONS OF ISTANBUL STOCK EXCHANGE MARKETKey characteristics and forms of market efficiencyMarket efficiency is a very important concept for a portfolio manager. This concept derived from the Efficient Market Hypothesis (EMH), suggests that the price of a security reflects all the information available about that security (James, 2012).Although the EMH applies to all types of financial securities, discussions of the theory usually focus on one kind of security, namely, shares of common stock in a company (Jones and Netter, 2008).To measure exactly the efficiency of a market, there are some factors to evaluate such as: the time for security's price to reflect new information, the bigger the scale of market, the more participants that make it efficiently. In addition, market considered as efficiency when the unexpected information affects to the market and how it reflects on security's price. Information is anticipated by investors will have no impact to security's price. The last factor affecting market efficiency is the transaction costs and other costs associated with trading and analysis. As long as these costs are high, the markets will be inefficient (James, 2012).The EMH distinguishes the efficient market based on weak-form, semistrong-form and strong-formThe weak-form states that no investor can expect to earn excess returns based on an investment strategy using such information as historical price or return information. All stock market information, including the record of past stock price changes and stock trading volume, is fully reflected in the current price of a stock (Moyer and Mcguigan et al., 2009, p. 42). Hence, investors cannot predict the changes of future price by using technical analysis. However, fundamental analysis and non-public information can be used to earn excess return (Jan, 2013).[1: Technical analysis: research on recurrent and predictable stock price patterns and on proxies for buy or sell pressure in the market (Hill, 2013)][2: Fundamental analysis: research on determinants of stock value, such as earnings and dividend prospects, expectations for future interest rates, and risk of the firm (Hill, 2013)]For example, assuming that John is broker and he has no experience working in Kuala Lumpur Stock Exchange (KLSE). Recently, he's interested in investment and observes that the price of Nagamas International Berhad has decreased on Monday and increased on Friday. Therefore, he decided to buy 100 shares of Nagamas' stock for 0.330 MYR per share on Monday, 25 Nov 2013. However, the price dropped to 0.295 MYR per share on Friday, 6 Dec 2013. The KLSE market considered as weak-form efficiency because John could not depend on the record of past stock price changes to earn profits.The semi-strong form states that all...

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