Taufique Samdani Iéseg School of Management firstname.lastname@example.org
• Part 1: Introduction
– Theory and evidence
• Anomalies in Financial Markets. • Efficient Market explanation to anomalies in Market (Fama & French).
– Behavioral Finance explanations to anomalies in Market.
• Limits to Arbitrage • Psychology (Beliefs & Preferences)
• Part 2:
• Utility Theory. • Prospect Theory (Kahneman & Tversky)
• Part 3: IPO
• Part 4:
• Part 5:
• Part 6:
– Market Bubbles
Part 1 Theory and Evidence
1.1 Capital Markets History 1.2 EMH (Efficient Market Hypothesis) 1.3 Behavioral Finance 1.3.1 Limits to Arbitrage 1.3.2 Evidence 126.96.36.199 Twin Shares 188.8.131.52 Index Inclusions 184.108.40.206 Internet Carve-outs 1.3.23 Psychology
Capital Markets History
• Fundemental Analysis
– Financial and economic data
• Technical Analysis
– Past price patterns
• Theory of competitive markets
– « no free lunch »
• Efficient Market Hypothesis (EMH)
« An efficient capital market is a market that is efficient in processing information. The prices of securities observed at any time are based on correct evaluations of all information available at that time. In an efficient market, prices fully reflect available information. Real Capital Markets are efficient» (Fama 1970)
Efficient Market Hypothesis (EMH)
• Price (P) = fundamental value (E[P*])
where E[R] is the rational discount rate and E[CF] is the rational cash flows.
• How do you determine E[P*] ?
• Weak form:
– All past info efficiently included in the price.
• Semi-strong form:
– All past and new public info efficiently included.
• Strong form:
– All past and new public and private info...