| Corporate finance course | Limits to market efficiency |
 |
| Minor limits to market efficiency • The degree of efficiency depends on the size of the market. Market efficiency need high volume of transactions: for some stocks the price is not correct Market price are not always real prices because trade-offs need money, time, information...: theory of transaction costs (in this case, it includes the transaction costs themselves, but they are not very high: 1 % of the total amount for each transaction). • One way to measure mkt efficiency is how quick transactions are processed. From 2,5 days (Frankfurt) to more than 15 in London, because the registers use paper. There will be a European stock market. The French are the initiators (in Paris) because they were afraid of the recent talks for association between GB and Germany. Major limits to market efficiency • inside information • The prices are volatile. And it is not due to change in the value of the stocks Is the stock market rational? The 1987 crash: one reason is automatic orders that are left by investors. But except this, financial markets are marked by everything but rationality: paranoia, euphoria, machiavelism, herd behaviour (in abnormal moments), bubbles, tendencies that are little dependant from the real world (bear, bull) However, there is a market financial power, without any democratic legitimacy. There are a little number of managers of anglo-saxon funds that dominate the markets and sometimes coordinate their actions in their own purpose. Portfolio risks >> |
|
Corporate finance PART ONE: CAPITAL EXPENDITURE PART TWO. BASICS OF FINANCE PART THREE FINANCING DECISIONS PART FOUR FINANCIAL MANAGEMENT Course created and updated by Dr David Chelly, PhD in Management sciences from the University of Tours.
|