Test Of Market Efficiency In Europe Essay Example Pdf - Free Essay Example

Sample details Pages: 6 Words: 1861 Downloads: 6 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? Introduction The reigning theory in the financial markets, often referred as efficient markets, is deeply embedded in the way that markets operate (Authers, 2009). Last years turmoil in the financial markets, which started with the problems in the U.S. housing market and was followed by the global credit crisis, has flared up the discussion between the critics about the legitimacy of this theory. Don’t waste time! Our writers will create an original "Test Of Market Efficiency In Europe Essay Example Pdf" essay for you Create order In times of panics and bubbles investors dont behave rational, which is one of the cornerstones of the theory. The theory is central to business schools curriculum and is part of the Chartered Financial Analyst qualification that acts as a gateway to the investment profession. If the theory needs to be abandoned, the effect on investing will be profound (Authers, 2009). An efficient market is defined as a market where there are large numbers of rational, profit-maximizers actively competing, with each trying to predict future market values of individual securities, and where important current information is almost freely available to all participants (Fama, 1965). Fama (1965) states that the instantaneous adjustment property of an efficient market implies that successive price changes in individual securities will be independent. A market where successive price changes in individual securities are independent is, by definition, a random walk market. This implies that a series of stoc k price changes has no memory the past history of the series cannot be used to predict the future in any meaningful way. To every piece of new information to markets will react in a random walk and are therefore not possible to beat. Investors are according to the Efficient Market Hypotheses (EMH) not able to earn above normal returns. Forms of Market Efficiency There are three forms of Market Efficiency: Weak, Semi-Strong, and Strong that explain how quickly the Market will react to new publicly announced information. According to Bodie (2005) the weak form of theory asserts that stock prices already reflect all information that can be derived by examining market trading data such as the history of past prices or trading volume. The weak form theory states that it is impossible for an investor to achieve a positive abnormal return by using these past information. Bodie (2005) states in his book that the Semi-Strong form hypothesis states that all publicly available information regarding the prospects of a firm must be reflected already in the stock price, e.g. past prices, balance sheet composition, accounting practices. This form also makes it impossible to outperform the market. This theory has been tested (Fama, Fisher, Jensen and Roll. 1969) numerous times by examining adjustments of the market to publicly available information, such as announcements. The third form, the strongest one, states that stock prices reflect all information relevant to the firm, even including information available only to company insiders (Bodie, 2005). Mergers Acquisitions Mergers acquisitions (MA) have been the subject of considerable research in financial economics (Morellec, 2005). MA involves the buying, selling, and combining of companies. The acquiring and target companies feel that by joining they can somehow create synergy: the value of the combined firm is greater than the two firms operating separately (Cording, 2002). When MAs are successful and they are announced to the public, it is generally a good thing for shareholders. By joining efforts the company should be able to lower the costs of the company while maintaining revenue, therefore yielding more profit (Ross, 2008). It is widely believed that the introduction of the Euro, the globalization process, technological innovation, deregulation and privatization, as well as the financial markets boom and the surge in liquidity, have all spurred Europe companies to take part in MAs during the last decade (Campa, 2008). All these transactions are under strict regulation in Europe, requiring several approvals to be met, such as the European Commission. The major concerns of these industry regulators is to avoid the creation of monopolies. The combination of the two Gersdorff and Bacon (2009) tested in their paper the market efficiency of Mergers Acquisitions announcements in the U.S. They analyzed the effect of twenty recent mergers and acquisitions announcements on stock prices in the year 2007. The authors found evidence of lingering excess returns after the merger announcement. Although, also evidence supports the semi-strong market efficiency along with a positive signal exhibited by the sample of acquiring firms during the even period (day -30 to day +30). In the study of Liang (2009), whether abnormal returns exist surrounding the announcement day, results show that there is no significant announcement effect over the event period (day -10 to day +10) for U.S. companies, but a significant effect for Chinese companies during the event period. These studies show mixed results according to the efficient markets hypotheses. This hypothesis states that investors should not be able to earn above normal returns in the Market, because all the information should be reflected in the current stock price. In my event study (day -50 to day +50) this particular hypothesis will be tested. The goal is to see if it is possible for investors to achieve a positive, abnormal return, with the announcement of a company merger or acquisition in the European Market. Problem Statement The problem discussed in the introduction about the legitimacy of the Efficient Market Hypotheses concerns the whole universe of financial markets. Some of the assumptions that are fundamental for the theory, e.g. the rationality, and their corresponding implications for market efficiency, have come under attack recently (Lo, 2005). Is the market that efficient as some economist, investors and scholars think? This event study will test the efficiency of markets in Europe in the event period around the announcement of a typical merger or acquisition (MA). The test will be if it is possible for investors to outperform the market (absolute return), with respect to the Semi-Strong form. Therefore the research question is constituted as follows: Is het possible for an investor to outperform the market with the announcement of a merger or acquisition? The study will include about 100 recently stock MA announcement in Europe, and will use the event study methodology. According to the s tudy of Gersdorff and Bacon (2009) two possible outcomes are possible. If the Markets exhibits the movement similar to the company, then the theory of an Efficient Market would hold true and an investor would not be able to receive an above normal return. But if, the firm exceeds the Market for a certain period of time relative to the announcement date, then the possibility of gaining an above normal return may occur, thus possibly challenging the Efficiency Market Theory. Type of research As discussed before this study will be an event study. An event study is concerned with the impact of a particular firm-specific corporate event on company security prices. Event studies measure stock performance that reflects investor opinions concerning the importance and benefit level of the event (Binder, 1998). The event study will include about 100 MA announcements (the sample) in Europe from 2002 till 2007 of target companies (that means not the buying company but the one that will be acquired). Data will be conducted from Thompson Reuters DataStream and Bloomberg (The two worlds largest financial statistical databases). Hypothesis H0: The return of the stock price of the sample of firms announcing a merger or acquisition is not significantly affected by this type of information around the announcement day, as defined by the event period. H1: The return of the stock price of the sample of firms announcing a merger or acquisition is significantly affected by this type of information around the announcement day, as defined by the event period. Methodology / Model The conceptual model / method of the study of Gersdorff and Bacon (2009) will be used. This is line with the event study methodology described in the literature. Part of the authors conclusion in their study is that if a larger sample is taken the signs of equilibrium in the market would probably be more obvious. Therefore in this study a larger sample of firms, longer time series and a different geographically area is taken. The next steps will be followed: Step 1: All information about the stock price and market price within the duration of -181 days to +50 days is conducted of the 100 firms in the sample (Datastream and Bloomberg). Step 2: The holding period return for the firms and the market will be calculated. Step 3: Regression analyses will be performed comparing the actual daily return of each company to the market daily return covering the pre-event period (day -180 to day -50). Where the firm is the dependent variable and the market (e.g. DJ Stoxx 600) the indep endent variable. This regression analyses is done to calculate the intercept alpha and the beta. This is done for each single firm. Step 4: The former step is done to calculate the normal expected returns for the event period. Now the expected return is E(R) = alpha + beta (Rm). Where Rm is the return of the market (e.g. DJ Stoxx 600). Step 5: The Excess return (the absolute return) can now be calculated: The actual return (in the event period) expected return (step 4). Step 6: Average excess returns are calculated in the event period cumulative average excess returns will be calculated. Step 7: Graphs of the average and cumulative returns in the event period are created (for interpretation). Quantitative tests The question is if it is possible for investors to outperform the market? If a new MA deal is announced (the information is made publicly), it would be expected that the actual return would be different than the expected return. With the cumulative average return related to time (event period) there could be seen if it is possible to outperform the market. In the graph (and data) can the impact be seen of the announcement on the stock price. Results of the study can lead to further review of this particular type of MA deals and the effects of the announcement date on a target company. Planning In the table 1 below, an overview of the planning during the study is given. For each weak the table shows which activity is done. The project, as stated in the table, will be finished in June. Table 1: Timeline References ÂÂ · Authors, J. (2009). Wanted: new model for markets. Investment theory. Financial Times, Tuesday Sep. 29,2009. ÂÂ · Binder, J. (1998). The event study methodology since 1969. Review of quantitative finance and accounting, 11. 111-137. ÂÂ · Bodie, Z. (2005). Investments. 6th edition. (Kane and Marcus). McGraw Hill. ÂÂ · Campa, J. (2008). The European MA industry: trends, patterns and shortcomings. Working Paper IESE. 762. ÂÂ · Cording, M. et al. (2002). A focus on resources in MA success: a literature review and research agenda to resolve two paradoxes. Academy of management ÂÂ · Fama, E. (1965). Random Walks in Stock Market Prices. Financial Analysts Journal Sep/Oct ÂÂ · Gersdorff, N. and Bacon, F. (2009). US mergers and Acquisitions: A test of market efficiency. Journal of Finance and Accounting. ÂÂ · Liang, H. (2009). The information implication of merger and acquisition announcements: evidence from the US and China . ÂÂ · Lo, A. (2005). Reconciling Efficient Markets with behavioral finance: the adaptive markets hypothesis. ÂÂ · Morellec, E. (2005). The dynamics of mergers and acquisitions. Journal of financial economics. 77., 649-672. ÂÂ · Ross, S. (2008). Corporate Finance (Stephen, Randolph, Jeffery) 8th edition. US McGraw-Hill.

Essay on How Asian Americans are Portrayed in Hollywood...

Asian American actors and actresses are portrayed in Hollywood movies as always being the silent and yielding foreign victims to social injustice and prejudice. Whether or not these depictions are true, they are nonetheless stereotypes that Hollywood producers have come up with. According to the US Census in the year 2000, Asian Americans make up 4.2% of the entire American population, and knowing that most Asian Americans live on the west and east coast of the United States, many Americans living in central parts of this country have not really been exposed to any Asian Americans. Because of this fact, it is highly probable that most Americans get their exposure to the Asian American lifestyle only through television and movies. Even if†¦show more content†¦His men get defeated by other white gangs which clearly shows that Hollywood wants you to think that Asians are inferior to white people. 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Wisdom I have learned from an older adult Free Essays

I have to say that Vive put quiet a bit of thought Into who Vive received the most words of wisdom from and I have chosen my adopted mother. Over the past thirty six years that I have been a part of my adopted family I have truly had some difficulties coping and dealing with the fact my biological mother abandoned myself and my four brothers when I was a baby. For many years I have questioned so many things, the reasons, the whys, the what ifs, and how can a mother possibly do meeting so traumatic to such small, innocent children. We will write a custom essay sample on Wisdom I have learned from an older adult or any similar topic only for you Order Now I’ve had many a disagreement with my adopted mother over my continued search for answers, yet through all my struggles I have learned a few things that will always remain close to my heart and forever be embedded within my thoughts. Mom always told me you cannot make someone love you. All you can do is be someone who can be loved. The rest is up to them. I decided that I could never make my biological mother love me, but in turn I could love my children, family and friends without all my heart and open y heart to them In return. Vive learned that no matter how much I care, some people just don’t care back. She taught me that It takes years to build up trust, and only seconds to destroy It. She told me that It’s not what you have In your life, but who you have In your life that counts so don’t dwell on those that have chosen not to be apart of your life. She taught me that you shouldn’t compare yourself to the best others can do, but to the best you can do. I quickly learned that I wanted to be the best for myself and no one else. She truly tried to instill in my head that it’s not what happens to people that’s important. It’s what they do about it. So, with that in my head I have chosen to take what my biological mother put me through and teach my children what it truly means to love and be a parent in hopes that they will one day be able to instill their love in their children, family and friends as well. Vive learned that it’s taking me a long time to become the person I want to be but without Mom’s guidance and encouragement I would have never over come my frustrations, worries ND concerns. One of the most important things she taught me was that you should always leave loved ones with loving words. It may be the last time you see them. She taught me that you can keep going long after you think you can’t. So many times I’ve wondered why I was even brought into the world and why I continue to move forward everyday when I have felt I shouldn’t. She taught me to always remember what my biological mother did and always remember that we are responsible for what we do, no matter how we feel. I honestly do not feel my biological mother ever felt responsible for the pain she put us through. She taught me that learning to forgive takes practice. Forgiving my biological mother has taken me years to do, but I have been able to accomplish forgiveness. Vive learned that sometimes when I’m angry I have the right to be angry, but that doesn’t give me the right to be cruel. Mom always said that I can be angry at my mother the rest of my life but never be cruel to anyone because of my feelings, people don’t deserve to be treated In the manner I have en. I’ve learned that maturity has more to do with what types of experiences you’ve had and what you’ve learned from them and less to do with how many adopted mother has tried to instill in my head and my heart, but I have always kept her wisdom close to my heart and knew that in time I would head her lessons and one day be the sort of person I have always wanted to be. We don’t always believe older people have wisdom but my adopted mother has more wisdom than I will ever have in a life time and I thank her each and everyday for it. How to cite Wisdom I have learned from an older adult, Papers