台湾大学：《财务管理》（英文版） Chapter 12 Financing and the lessons of Market Efficiency

Fundamentals of Corporate Finance Third edition Chapter 12 Corporate Brealey Myers Marcus Financing and the lessons of ndamentals of Corporate Finan Market Efficiency Brealey Myers Marcus slides by Matthew will IrwinMcGraw-Hill CThe McGraw-Hill Companies, Inc, 2001

©The McGraw-Hill Companies, Inc.,2001 12- 1 Irwin/McGraw-Hill Chapter 12 Fundamentals of Corporate Finance Third Edition Corporate Financing and the Lessons of Market Efficiency Brealey Myers Marcus slides by Matthew Will Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc.,2001

12.2 Topics Covered SInvestment Decision VS Financing Decision MArket Efficiency → Weak form efficiency )Semi-strong form efficiency )Strong form efficiency LEssons of market efficiency Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001

©The McGraw-Hill Companies, Inc.,2001 12- 2 Irwin/McGraw-Hill Topics Covered Investment Decision vs. Financing Decision Market Efficiency ➔Weak form efficiency ➔Semi-strong form efficiency ➔Strong form efficiency Lessons of Market Efficiency

12.3 Investment vS Financing S Investment decision are made based on the risk of the project, with total disregard for how the project will be financed(flotation costs being the exception O Financing decisions are made based on the conditions in the capital markets, with little consideration for the investment being made (project specific funding being the exception IRBs are a good example) Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001

©The McGraw-Hill Companies, Inc.,2001 12- 3 Irwin/McGraw-Hill Investment vs. Financing Investment decision are made based on the risk of the project, with total disregard for how the project will be financed (flotation costs being the exception). Financing decisions are made based on the conditions in the capital markets, with little consideration for the investment being made (project specific funding being the exception. IRBs are a good example)

12.4 Market Efficiency Market Eficiency Theory Capital markets reflect all relevant information. You cannot consistently earn excess profits MONEY Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001

©The McGraw-Hill Companies, Inc.,2001 12- 4 Irwin/McGraw-Hill Market Efficiency Theory Capital markets reflect all relevant information. You cannot consistently earn excess profits. Market Efficiency

12.5 Market Efficiency Efficient Capital Markets- Financial markets in which security prices rapidly reflect all relevant information about asset values Random Walk - Security prices change randomly, with no predictable trends or patterns Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001

©The McGraw-Hill Companies, Inc.,2001 12- 5 Irwin/McGraw-Hill Market Efficiency Efficient Capital Markets - Financial markets in which security prices rapidly reflect all relevant information about asset values. Random Walk - Security prices change randomly, with no predictable trends or patterns

12.6 Random Walk Theory SThe movement of stock prices from day to day do not reflect any pattern STatistically speaking, the movement of stock prices is random (skewed positive over the long term) Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001

©The McGraw-Hill Companies, Inc.,2001 12- 6 Irwin/McGraw-Hill Random Walk Theory The movement of stock prices from day to day DO NOT reflect any pattern. Statistically speaking, the movement of stock prices is random (skewed positive over the long term)

12.7 Random Walk Theory Coin Toss game Heads $10609 Heads $103.00 $100.43 Tails $100.00 Heads $100.43 $97.50 Tails $9506 Tails Irwin/McGraw-Hill CThe McGraw-Hill Companies, Inc, 2001

©The McGraw-Hill Companies, Inc.,2001 12- 7 Irwin/McGraw-Hill Random Walk Theory $103.00 $100.00 $106.09 $100.43 $97.50 $100.43 $95.06 Coin Toss Game Heads Heads Heads Tails Tails Tails

12.8 Random Walk Theory S&P 500 Five Year trend? or 5 yrs of the Coin Toss Game? 180 130 80 TTT 「 TTTTTTTTTTT Month Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001

©The McGraw-Hill Companies, Inc.,2001 12- 8 Irwin/McGraw-Hill Random Walk Theory S&P 500 Five Year Trend? or 5 yrs of the Coin Toss Game? 80 130 180 Month Level

12.9 Random Walk Theory S&P 500 Five Year trend? or 5 yrs of the Coin Toss Game? 230 180 130 80 TTTTTTTTTTTTTTTTTTTTTTTTTTTn Month Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001

©The McGraw-Hill Companies, Inc.,2001 12- 9 Irwin/McGraw-Hill Random Walk Theory S&P 500 Five Year Trend? or 5 yrs of the Coin Toss Game? 80 130 180 230 Month Level

12-10 Market Efficiency Technical Analysts- Investors who attempt to identify over- or undervalued stocks by searching for patterns in past prices Fundamental Analysts- Analysts who attempt to fund under-or overvalued securities by analyzing fundamental information, such as earnings. asset values and business prospects Irwin/McGraw-Hill CThe McGraw-Hill Companies, Inc, 2001

©The McGraw-Hill Companies, Inc.,2001 12- 10 Irwin/McGraw-Hill Market Efficiency Technical Analysts - Investors who attempt to identify over- or undervalued stocks by searching for patterns in past prices. Fundamental Analysts - Analysts who attempt to fund under- or overvalued securities by analyzing fundamental information, such as earnings, asset values, and business prospects