資本市場與公司財務課件Lecture9

1、Chapter 10The pricing efficiency of capital marketsOverviewIn this lecture we will:Outline the theory of market efficiencyDefine the term market efficiencyExplain how markets are kept efficientDiscuss different possible levels of market efficiencyExamine tests of the efficiency of the ASXReview rele

2、vant research published in academic journalsMarket efficiency theoryMarket efficiency specifically relates to informational efficiency, and is concerned with how rapidly security prices reflect or impound new information that arrives to the marketMarket efficiency theory (cont)Professor Eugene Fama

3、(University of Chicago) defines market efficiency as an hypothesis:“THE SIMPLE STATEMENT THAT SECURITY PRICES FULLY REFLECT ALL AVAILABLE INFORMATION”The Oxford English Dictionary defines hypothesis as:“A PROVISIONAL SUPPOSITION FROM WHICH TO DRAW CONCLUSIONS WHICH SERVES AS A STARTING POINT FOR FUR

4、THER INVESTIGATION BY WHICH IT MAY BE PROVED OR DISPROVED”But how are security prices kept efficient?What keeps security prices efficient?Case StudyAt around 1.05pm on 30 August 2005, Tabcorp Holdings released a preliminary final reportThis information was used by investors to revise (upward) the ca

5、sh flows forecast for Tabcorp, resulting in a permanent upward revision of the fair value of TabcorpThe price of Tabcorp shares rose from:$16.29 at 1.00pm to$16.64 at 1.30pmThe price of Tabcorp against the ASX200 on 30/8/0513.5010.4015.0014.1013.004445.04440.04435.04430.04425.04420.04415.04410.04405

6、.04000.04395.04390.0Index valueTAHASX20015.9016.0016.1016.2016.3016.4016.5016.6016.7016.80Price ($)10.0010.1010.2010.3010.5011.0011.1011.2011.3011.4011.5012.0012.1012.2012.3012.4012.5013.1013.2013.3013.4014.0014.2014.3014.4014.5015.1015.2015.3015.4015.5016.0016.10Time(CONT)What keeps security prices

7、 efficient?FIGURE 10.1If all market players had accurately predicted the content of the earnings release prior to 1.05pm:There would have been large buying pressure in Tabcorp HoldingsThis would have pushed the price up before the releaseWhen the earnings report was made public the share price would

8、 not have changedAny attempt to trade on the information would have netted no profit, because the share price would already have reflected, or impounded, the content of the information release(CONT)What keeps security prices efficient?Security analystsAnalyse information related to stocks that they

9、follow, and forecast the future cash flows and share value of these stocksTrading based on this analysis has two important consequences:The first clients to trade make a profitThe trading process causes security prices to reflect the information uncovered by analystsHence, it is the activities of se

10、curity analysts and their clients that cause prices to be efficient(CONT)What keeps security prices efficient?Levels of market efficiencyFama (1970) identified three levels of market efficiency:Weak-form efficiencySemi-strong-form efficiencyStrong-form efficiencyPrices reflect all information contai

11、ned in the record of past pricesPrices fully reflect all publicly available informationAll available information is fully reflected in current pricesLevels of market efficiency (cont)Development of weak-form efficiencyTraders might have access to new information, and begin to reveal that information

12、 by the effect on pricesPerceiving a trend, other market participants may transact in an attempt to profit from the new informationThis speeds up the impounding of the information revealed by the initial price movement subsequent movements after the initial information has been impounded will be ran

13、domLevels of market efficiency (cont)Implications of semi-strong-form efficiencyMust also be weak-form efficient, because historic prices are publicly available informationReacts immediately to the release of any new information contained in information announcementsImplications of strong-form effic

14、iencyMust also be semi-strong-form efficient (and therefore weak-form efficient) because publicly available information forms part of “all available information”Prices should reflect private information, or information known only to a group of participantsPrivate informationInside information is inf

15、ormation known only to those who are in a privileged position in relation to a companySuch information could, in theory, be reflected in prices if insiders trade on information and are able to move prices, thus revealing the informationInsider trading is illegal in Australia and in most developed co

16、untries, but that doesnt necessarily mean it doesnt occurTests of the efficiency of the Australian Stock ExchangeSeveral tests can help determine whether a market is efficientWe will look at the following tests of capital market efficiency:Do prices follow a “random walk”?Are trading rules profitabl

17、e?Do prices react rapidly to information from earnings announcements or large trades?Is it possible to profit from insider trading? Is the ASX weak-form efficient?If a market is weak-form efficient, price movements should be random and should not exhibit trendsTwo possible implications of this predi

18、ction:Prices should follow a “random walk”Where the current price (Pt) is unrelated to the previous price (Pt-1), or if the value linking the two (e.g. ) is a random number, as follows:Trading rules based on detecting and trading on price patterns should be unprofitable(10.1)FIGURE 10.2 shows the le

19、vel of the ASX200 index from Jul 2002 to Sep 2005 Some periods show broad trends in prices e.g. the general increase between Sep 2004 and Mar 2005Is the ASX weak-form efficient? (cont)Over shorter time frames- upward movements seem to follow previous upward movements (e.g. area A) downward movements

20、 seem to follow previous downward movements (e.g. area B)Is the ASX weak-form efficient? (cont)FIGURE 10.2Given these perceived patterns there should be a very strong positive relationship between price movements on consecutive daysHowever, when price level movements are compared across consecutive

21、days, this is not the case. ASX is weak-form efficientIs the ASX weak-form efficient? (cont)FIGURE 10.2Are mechanical trading rules profitable on the ASX? In a weak-form efficiency it should not be possible to make systematic profits from trading rules set up to detect and trade on the basis of pric

22、e trendsAn example of such a trading rule is a filter rule, where the filter represents a percentage applied to share movementsExample:A 10% filter rule Buy if the stock rises 10% from its previous lowest priceSell if the stock falls 10% from its previous highest priceAssumption: The trend identifie

23、d by the rule will continueAre mechanical trading rules profitable on the ASX? (cont)Application of a 10% filter rule to BHP shares between January 1969 and July 1970FIGURE 10.3Ball (1978) found that the differences between returns on the filter securities and the paired securities is quite smallBal

24、l concluded that it is not possible to make profits from trading rules relying on price patterns, implying that the ASX is weak-form efficientMore recent studies in other markets have unanimously reported that no useful information can be obtained from past pricesAre mechanical trading rules profita

25、ble on the ASX? (cont)Is the ASX semi-strong-form efficient?In a semi-strong-form efficient market, prices impound all publicly available information, and therefore should adjust immediately after information announcementsThe most common test of semi-strong-form efficiency is an event study, which e

26、xamines the behaviour of prices around information eventsThe purpose of the study is to analyse how quickly new information is reflected in share pricesSince stock-price movements may be caused by broad market movements as well as information conveyed by an event, it is necessary to isolate abnormal

27、 returns (ARt), as follows:where: Rt=the actual returnE(Rt)=the expected return in the interval tIt is normal to use the CAPM to estimate expected returns(10.2)Is the ASX semi-strong-form efficient?(CONT)Example 10.1 On 22 August 2005, Toll Holdings announced that it was attempting to take over Patr

28、ick Corporation. The daily stock prices and ASX200 values around the time of the announcement as are as follows. DatePatrick Corp price ($)ASX200 Accum. Index16 August5.812580017 August5.932572318 August5.702558019 August6.452568822 August7.382591323 August7.252584124 August7.2025623Is the ASX semi-

29、strong-form efficient?(CONT)Example 10.1 (cont) On 22 August 2005, Toll Holdings announced that it was attempting to take over Patrick Corporation. If the beta of Patrick Corporation is 0.91 and 90-day BABs were yielding 5.65% p.a., calculate the abnormal return of Patrick Corporation on the days be

30、fore and after the announcement._ Patrick Corp daily returnAccum. Index daily returnExpected returnAbnormal returnCalculation(CONT)Is the ASX semi-strong-form efficient?Example 10.1 (cont)The abnormal return on the day of the announcement 13.62%, and on the day following the announcement -1.51%Patri

31、ck Corp daily return (%)Accum. Index daily return (%)Expected return (%)Abnormal return (%)Calculation17 August2.07-0.30-0.272.3418 August-3.88-0.56-0.50-3.3719 August13.160.420.3912.7722 August14.420.880.8013.6223 August-1.76-0.28-0.25-1.5124 August-0.69-0.84-0.770.08Is the ASX semi-strong-form eff

32、icient?(CONT)Do stock prices on the ASX react rapidly to information?Aitken, Brown, Frino and Walter (1995), studied 30-minute abnormal stock price returns around earnings announcementsThe study analysed announcements by 156 companies on the ASX during the year ended 30 June 1992The sample was divid

33、ed into:Large stocks and small stocksGood news and bad news announcements Do stock prices on the ASX react rapidly to information? (cont)Large stocks announcing good newsLarge stocks announcing bad newsFIGURE 10.4Do stock prices on the ASX react rapidly to information? (cont)Small stocks announcing

34、good newsSmall stocks announcing bad newsFIGURE 10.5Do stock prices on the ASX react rapidly to large trades?Another test of semi-strong-form efficiency is to analyse how quickly prices adjust to information conveyed by large trades, or block tradesAssumption: Large traders, such as fund managers, a

35、re better informed than small tradersHence, a large buy order might indicate to the market generally that a stock is underpriced, and a large sell order might indicate over-pricingDo stock prices on the ASX react rapidly to large trades? (cont)Aitken and Frino (1996) studied 4,554 block buy orders a

36、nd 4,554 block sell orders between 1 July 1991 and 30 June 1993The average size of block: buy orders = $339,637sell orders = $355,423 There are large upward and downward movements following block buy and sell orders, respectively FIGURE 10.6Is the ASX semi-strong-form efficient?There is some evidenc

37、e to suggest that the ASX is semi-strong-form efficient:In most cases, the information contained in earnings announcements is reflected in share prices within 30 minutesOne possible exception is good news from small companies it takes more time for this information to be reflected in pricesIt takes

38、no more than three trades for the information conveyed by large trades to be impounded Is the ASX strong-form efficient?Historically, in Australia there have been convictions for illegal, profitable insider tradingIf a market is strong-form efficient, it should not be possible to profit from insider

39、 tradingFund managers, also, arguably have access to more timely, accurate information than the general publicNevertheless, fund managers do not make abnormal returns (Sawicki, 2000)Therefore the ASX is likely to be semi-strong-form efficientEvidence against the Efficient Markets Hypothesis A final wordAlthough most studies have concluded that the ASX is at least semi-strong form efficient, a substantial body of academic literature suggest