Are Financial Markets Efficient ?

K.Flores

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• Publié par: exuhezuw
• Nombre de lectures: 91
• Langue: Français

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Are Financial Markets Efficient ?

David THESMAR (HEC)

This course describes the intense academic controversy over economic theories of

asset (stock) prices. Such theories make assumptions about investor behaviour (their

degree of rationality, their ability to engage in arbitrage).

On the one hand, there are those who defend the “Efficient Market Hypothesis”, on

the grounds that financial markets offer very few opportunities to make riskless

profits, which leads to the fact that prices are almost always right. On the other hand,

advocates of “Behavioral Finance” contend that existing theories consistent with the

EMH have very little predictive power over asset prices, and that significant riskless

arbitrage opportunities do survive on financial markets.

This lively debate has provided the underpinnings for the vast empirical literature on

asset pricing that will be reviewed in this course.

1. Small bits of theory of asset pricing in equilibrium: the EMH

a. CAPM and tests of CAPM : not so great.

b. CCAPM and test of CCAPM : equity premium puzzle

c. APT

Cochrane, John, “Asset Pricing”, MIT Press

Fama and French, 2004, “The Capital Asset Pricing Model: Theory and Evidence”,

Journal of Economic Perspectives

Julliard and Parker, 2005, “Consumption Risk and the Cross Section of Expected

Returns”, Journal of Political Economy

2. First attack : Post announcement drift

a. EMH - Event studies : M&As, Repurchase, SEO

Roll, Richard, 1986, “The Hubris Hypothesis of Corporate Takeovers”, Journal of

Business

b. The post announcement drift

Lakonishok and Vermaelen, 1990, “Anomalous Price Behavior Around Repurchase

Tender Offers”, Journal of Finance

Loughran and Vijh, 1997, “Do Long Term Shareholders Benefit from Corporate

Acquisitions ?”, Journal of Finance

Loughran and Ritter, 1995, “The New Issues Puzzle”, Journal of Finance

Bernard and Thomas 1990, “Post Earnings Announcement Drifts: Delayed Price

Response or Risk Premium ?”, Journal of Accounting Research

c. The Mitchell and stafford critic: back to square one.

Mitchell and Stafford, 2000, “Managerial Decision and Long Term Stock Price

Performance”, Journal of Business