CFA 4 - 6 EMH Anomalies, Fundamental Analysis, Alternatives, and Manager and Investor Sentiment
CFA 4 - 6 EMH Anomalies, Fundamental Analysis, Alternatives, and Manager and Investor Sentiment
CFA 4 - 6 EMH Anomalies, Fundamental Analysis, Alternatives, and Manager and Investor Sentiment
- Historical Background
o Developed concurrently with capital markets research in the late 1960s
early 1970s
o Gained prominence in 1980s due to
Empirical evidence highlighting flaws of finance theories (capital
markets research)
Development of prospect theory (kahneman and Tversky)
Joint noble prize in economics in 2002
CFA 5
Manager and Investor Sentiment
Functional Fixedness
- Investors fixate on the information reported to them, due to information
processing biases
- Limits investors ability to under earnings
o Cannot see through earning management
Summary
- How do users of financial statements make decisions
o To invest in a company
o To grant a loan to a company
o To work for a particular company
- Capital market theories
o Theories from finance and economic
o Assumptions of human behaviour
Users a rational
Users seek optimal outcomes
Capital market is efficient
o Methodology
CAPM
- Behavioural theories
o Theories from psychology
o Assumptions of human behaviour
Users are irrational
Users seek satisfactory outcomes
Capital markets is inefficient
o Methodology
experiment