Chapter 8The Efficient Market Hypothesis Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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8.1Random Walks and the Efficient Market Hypothesis

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Efficient Market Hypothesis (EMH)Do security prices accurately reflect information?Informational Efficiency _____________________________________

Allocational Efficiency

Huge implications concerning the answers to these questions ~ abnormal profits or waste of resourcesAre price changes consistently predictable?Are prices correct in that they _________ ________________________ associated with the security?

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Implications of EfficiencyAllocational efficiencyIf markets are not allocationally efficient then perhaps there is a ________________________ ___________ in capital markets.

Possible rules changes to attempt to improve allocational efficiencyTax on trading activityMore taxes on short holding period returnsChanges in corporate compensation

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Implications of EfficiencyInformational efficiencyIf markets are not informationally efficient Investors may not be able to trust that market prices are up to date and investors should then conduct their own research (or hire a researcher) to validate the price.Privileged groups of investors will be able to consistently take advantage of the general public.Active strategies could outperform passive strategies.

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EMH and Competition * Competition among investors should imply that stock prices fully and accurately reflect publicly available information very quickly. Why?Else there are unexploited profit opportunities.* Once information becomes available, market participants quickly analyze it & trade on it & frequent, low cost trading assures prices reflect information.Questions arise about efficiency due to:Unequal access to informationStructural market problemsPsychology of investors (Behavioralism) ~ irrational explanations like weather may have an impact on investment performance or people may be easily fooled, etc

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Why are price changes random? Random Price ChangesIn very competitive markets prices should react to only NEW information

Flow of NEW information is randomTherefore, price changes are randomIdea that stock prices follow a Random Walk

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Random Walk: stock price ______________________

Stock prices actually follow a ____________________ Random Walk and the EMHchanges are unpredictablesubmartingale processExpected price change should be positive over timeBut random changes are superimposed on the positive trendE(pricej,t) > E(pricej,t-1)t = time periodA pure random walk implies informational efficiency

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Security PricesTimeRandom Walk with Positive TrendEvidence on Random Walk idea later.

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Forms of the EMHPrices reflect all relevant informationVary the ________________WeakThe relevant information is historical data such as past prices and trading volume. If the markets are weak form efficient, use of such information provides no benefit at the margin.information set

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Forms of the EMHSemi-strongThe relevant information is "all publicly available information, including the past data and information just released to the public."

If the markets are semi-strong form efficient, then studying studying earnings and growth forecasts and reacting to news provides no net benefit in predicting price changes at the margin.

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Forms of the EMHStrongThe relevant information is all information both public and private or insider information.

If the markets are strong form efficient, use of any information (public or private) provides no benefit at the margin.SEC Rule 10b-5 limits trading by corporate insiders (officers, directors and major shareholders) using the insider information. Insider trading must be reported.

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Relationships between forms of the EMHNotice that _______________________________ __________________ (but _____________)

Strong form efficiency would imply that __________________________________________.NOT vice versaboth semi-strong and weak form efficiency hold

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8.2Implications of the EMH (for Security Analysis)

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Types of Stock Analysis & Relationship to the EMHTechnical Analysis:

If the markets are efficient, will technical analysis be able to consistently predict price changes?NOTechnical Analysis using prices and volume information to predict future price changesTA assumes prices follow predictable trends

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Basic Types of Technical AnalysisSupport and resistance levelsSupport level: A price level below which it is supposedly unlikely for a stock or stock index to fall. Resistance level: A price level above which it is supposedly unlikely for a stock or stock index to rise.

A resistance level may arise at say $31.25 if a stock repeatedly rises to $31.25 and then declines, indicating that investors are reluctant to pay more than this price for the stock. A stock price above $31.25 would then indicate a 'breakout' which would be a bullish signal.

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Types of Stock Analysis & Relationship to the EMHFundamental Analysis:

Will fundamental analysis be able to consistently predict price changes?

using economic and accounting information to predict stock price changesIf the markets are only weak form efficient?Fundamental Analysis CAN predict price changesIf the markets are semi-strong or strong form efficient?Fundamental Analysis CANNOT predict price changes

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Fundamental AnalysisFundamental analysis assumes that stock prices should be equal to

Fundamental analysis is thus the the discounted value (PV) of the expected future cash flows the stock is expected to provide to investors.art of identifying over- and undervalued securities based on an analysis of the firm's future prospects.

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Fundamental AnalysisFundamental analysis varies in technique but generally focuses on forecasting the firm's future dividends or earnings, discounting those future cash flows by the required rate of return (usually obtained from the CAPM), and comparing the resulting estimated price with the current stock price.

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Fundamental AnalysisIf the estimated value is ______ than the current price an investor should ___ the stock since it is ___________ and since its price should ________ (eventually) to the "true" or "fundamental" value uncovered by the analyst.

If the estimated price is ____ than the current price the stock should be ____(or sold short) because the stock is currently __________ by the market.

In either case if the analyst is correct the investor should receive an ________________.undervaluedincreaseovervaluedabnormal return

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Fundamental AnalysisFor FA to add value, your forecast must be better than the consensus forecast. Not enough to find a good company, you must find a company that is better than others believe, i.e., mispriced.

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Active Management

Passive Management Implications of Efficiency for Active or Passive ManagementAssumes inefficiency, use technical and/or fundamental analysis to pick securitiesSecurity analysisTiming strategiesInvestment NewslettersBuy and Hold portfoliosIndex Funds or Index ETFs (Exchange Traded Funds)Consistent with semi-strong efficiency

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Even if the market is efficient (=> the price is right & you cannot beat the market ex-ante),a role still exists for portfolio management Market Efficiency and Portfolio ManagementIdentify risk & choose appropriate risk level

Tax considerations

Other considerations such as liquidity needs or diversify away from the clients industry.

Aside) EMH=> The price is right and you get what you paid for. No ripoffs & No great deals! However, you still need to know what you want (e.g., read consumer reports, etc). You dont want to buy a car with A/C in Alaska.

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8.3 Are Markets Efficient?

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Recall that over time stock prices tend to follow a ____________________ => a randomly chosen portfolio of securities is expected to have a positive return.

Empirical Tests of Informational Efficiencysubmartingale process

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This means that when trying to figure out if some portfolio manager is earning abnormal returns we try to ____________________________ ______________________ in an ex-ante sense.I.E. they must ____________________________, or in practice they must beat ____________________ _______ on a consistent basis.Empirical Tests of Informational Efficiencyoutperform the random portfolio

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Empirical Tests of Informational EfficiencyCan anyone consistently earn an abnormal return? This says that EMH=> investors do not repeat the same mistakes over and over in an irrational fashion.For example, sometimes they may overestimate the impact on earnings of some event and sometimes they underestimate the impact on earnings but on average the estimates are unbiased.Do investors systematically misinterpret information?

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Event studies

Assessing performance of professional managers

Testing a trading ruleEmpirical Tests of Informational EfficiencyExamine how quickly information is integrated into prices around an informational event.EMH suggests a rapid assimilation of information into prices.Can professional managers, using their resources and tools, beat the market after considering risk?EMH suggests professionals will not outperform the market.Testing whether a rule that uses available information can earn abnormal returns after considering the risk and cost of using the rule.EMH suggests that such rules will not work.

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1. Examine prices and returns around some material announcementHow Tests Are Structured

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0+t-tAnnouncement DateIndividual Abnormal Returns Surrounding the Event in an _______________Efficient MarketEarnings above forecast for example

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0+t-tAnnouncement DateEarnings above forecast for example

Inefficient MarketIndividual Abnormal Returns Surrounding the Event in an _______________

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How do we determine if the returns are abnormal?Market Model approacha.

b. How Tests Are Structured (cont.)rt = a + b(rindex,t) + etEstimate a and b coefficientsAbnormal Return or AR = (Actual - Expected)ARt = et = Actual return [a + b(rindex,t)]

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2. continued:c. Cumulate the abnormal returns over time:How Tests Are Structured (cont.)In this case there appears to be information leakage before the announcement date (day 0), is this a violation of EMH? Maybe, but wait!Add up the ARs over time

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Cumulative Abnormal Returns before Takeover Attempts: Target CompaniesIn this case there appears to be information leakage before the announcement date (day 0)Keown & Pinkerton

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Stock Price Reaction to CNBC Midday ReportsPatell & Wolfson

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Magnitude IssueIssues in Examining the ResultsEven _____________________________ may be worthwhile for managers of large investments. Eg.

The problem is that these __________________________ would be _________________ to measure since the standard deviation of many portfolios ______________.small changes in performance$5 billion dollar portfolio. Use research to improve results by 1/10 of a percent (or 10 basis points) per year = $5 million in value. is 20% or more

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(Sample) Selection Bias Issue

Lucky Event IssueIssues in Examining the ResultsI have this foolproof new trading scheme that will make me millions. I want to tell everyone about it.We rarely hear about the schemes that dont really work! If 10,000 people flip fair coins 50 times we can expect some people to flip 75% or more heads. => Do they have special skills to produce such results?In a large group of stock analysts, some will be correct most of the time in their picks, and they will look very smart even though their results are due to a pure chance!

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Possible Model Misspecification

Issues in Examining the ResultsResults have to be adjusted for the risk of the given stock or strategy.This means that tests of efficiency are necessarily joint tests of the model (e.g., CAPM) used to measure risk and market efficiency. Results counter to efficiency may be due to the fact the right model was not used to measure the risk and hence the expected return.

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Counter Evidence: Some Apparent Predictors of Broad Market ReturnsFama and French Campbell and Shiller

Keim and Stambaugh Aggregate returns tend to be higher for firms with higher dividend yieldsAggregate returns tend to be higher for firms with higher earnings yieldsChanges in bond credit spreads can predict market returnsEach of these may also be consistent with changing risk premiums (=> failing to capture the correct risks) and may have nothing to say about market efficiency.

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Average Annual Returns for 10 size-based portfolios, 1926-2007Results are driven by returns in the first two weeks of JanuaryMay be related to higher ESTIMATION risk of smaller firms Extra return may be more apparent than real due to higher trading costs and illiquidity

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Average Returns as a Function of the Book-To Market Ratio, 1926 to 2007Value Stock premium returnDistressed and out of favor stocks?

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Cumulative Abnormal Returns in Response to Earnings AnnouncementsShort term momentum effect that is counter to efficiency.Rendleman, Jones & Latane

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Bubbles and Market EfficiencyPeriodically stock prices appear to undergo a speculative bubble.A speculative bubble is said to occur if prices do not equal the intrinsic value of the security.

Does this imply that markets are not efficient?Very difficult to predict if you are in a bubble or not and when the bubble will burst. Stock prices are estimates of future economic performance of the firm and these estimates can change rapidly.Risk premiums can change rapidly and dramatically.

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Bubbles and Market EfficiencyWith hindsight it appears that there are times when stock prices decouple from intrinsic or fundamental value, sometimes for years.Prices eventually conform to intrinsic value. => EMH

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8.4 Mutual Fund and Analyst Performance

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Returns to Style Portfolio as a Predictor of GDP Growth

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Estimates of Individual Mutual Fund Alphas, 1972 - 1991Mutual fund returns versus the S&P500 index; Mean alpha = 0

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Persistence of Mutual Fund Performance

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Mutual Fund and Professional Manager PerformanceSuperstar phenomenon John Templeton(Templeton Funds)Warren Buffet(Berkshire Hathaway)Peter Lynch(Fidelity Magellan)Bill Miller(Legg Mason)Jon Neff(Vanguards Windsor Fund)

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Technical Analysis (TA)

Summary: What Does the Evidence Show?Stocks do not follow a pure random walk, so there is hope for technical trading strategies. => However, it should be more than a pure random walk, given some positive return expected.Most TA rules utilize short term trading strategies that generate excessive transaction costs and are not profitable.

There appears to be some long term trend reversals.

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Fundamental AnalysisSummary: What Does the Evidence Show?Appears to be difficult to consistently generate abnormal returns using fundamental analysis.This is because the analysis/investment industry is so competitive.May help you avoid seriously overvalued investments.

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Fundamental AnalysisSummary: What Does the Evidence Show?

Without fundamental analysis the markets would surely be inefficient, &Abnormal profit opportunities would exist, Leading to profitable fundamental analysisGrossman & Stiglitz AER, 1980

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Anomalies Exist Summary: What Does the Evidence show?Small Firm in January EffectBook to Market RatiosLong Term ReversalsPost-Earnings Announcement Drift (Momentum)

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Behavioralism biasMotivationStock prices in the 1990s did not appear to match fundamentals, e.g., high price earnings ratiosEvidence of refusal to sell losers (Why?)Economics discipline is exploring behavioral aspects of decision making

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What does it all mean?Technical Analysis:

Your choices

It may be an item in your toolkit but be careful relying on it too much.Pick stocks yourself, based on fundamental analysis, but diversifyPick one or more mutual fundsUnlikely to consistently earn + abnormal returnsPros paying attention to market and firm conditionsIndex or otherwise passively diversify.

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Selected Problems

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Problem 1Zero, otherwise returns from the prior period could be used to predict returns in the subsequent period.

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Problem 2No. Why?Maybe due to a higher risk?Maybe due to constant surprises beyond expected surprise earnings.

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Problem 3Not necessarily, Why?It could indicate information leakage (=> a violation of EMH) or it could indicate that splits occur during price runups (=> still consistent of EMH).

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Problem 4No, Why?You wont get + abnormal returns if the economic cycle is predictable, the news will already be incorporated in the stocks price.

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Problem 5Buy itThis is a Value Investment where you believe the stock will perform better than the market and if you are correct you will earn a positive abnormal return.

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Problem 6The small firm in January effectMight work, but it might notDoesnt hold every yearWould lead to underdiversificationHigher trading costs of these stocks might wipe out any gainsSince there is no solid theoretical reasoning for this the extra return might just be a risk premium.

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Problem 7Consistent, expect about half to outperform the market by chanceViolation, earn + AR by investing with last years winnersProbably consistent, but it depends. I might be able to use an option strategy to take advantage of this.

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Problem 7

Violation, you have exploitable price momentum persisting into February

Violation, the reversal offers an exploitable opportunity, namely buy last weeks losers

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Problem 8Implicit in the dollar-cost averaging strategy is the notion that stock prices fluctuate around a normal level. Otherwise, there is no meaning to statements such as: when the price is high.

How do we know, for example, whether a price of $25 today will be viewed as high or low compared to the stock price six months from now?

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Problem 9The market expected earnings to increase by more than they actually did.

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Problem 10The prices of growth stocks may be consistently bid too high due to investor overconfidence.Investors/analysts may extrapolate recent earnings (and dividend) growth too far into the future and thereby inflate stock prices, forcing poor returns eventually on growth portfolios.At any given time, historically high growth firms may revert to lower growth and value stocks may revert to higher growth, changing return patterns, this may happen over an extended time horizon.a.

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Problem 10Enough investors should prefer value stocks to growth stocks and bid up the prices of value stocks and drive down the prices of growth stocks until the extra return on the value stocks was eliminated.b.

*Describes the financial instruments traded in primary and secondary markets.Discusses Market indexes. Discusses options and futures.**Efficiency centers on the idea that stock prices always reflect information.If stock prices dont fairly represent firm value this can lead to a mistrust of corporations and their management.Efficient markets help investors to feel confident about the accuracy of stock prices, and that stocks are fairly prices.

Why does gold have value? It provides no cash flow, so what is its value based on? It is a hedge against uncertainty and inflation but it provides no tangible benefit. The greater fool theory maintains that you buy gold and hold it until you find a greater fool to buy it from you.*Still debatable whether government can make it better because they are so inefficient. I am NOT advocating greater government intervention in the markets. Rather we need to understand what is implied by what I think is some sloppy thinking about the implications that follow if we blithely conclude that markets are not efficient.**Competition suggests that new information is quickly analyzed and the signal associated with the information is quickly integrated into security prices.

Structural market problems refers to market imperfections such as transaction costs limiting arbitrage, constraints on short sales doing the same and recognizing that in volatile markets, most arbitrage strategies are really risky arbitrage, not riskless arbitrage. More on this later.**EMH suggest stock prices should not be predictable. If information important to stocks arrive in a random fashion we should expect stock prices to move in a random fashion.Since we have a positive risk premium we expect stocks to have a positive trend upward.*Deviations from the trend should be unpredictable.

the + trend line is there because firms invest in + NPV projects on average*Explain, at the margin, means after cost of obtaining and using the information.Weak- Prices reflect all information that can be derived from trading data such as prices and volume.Semi-Strong: Prices reflect all publicly available information regarding the firms prospects. Financial Data, information about the industry, the firm management, etc.Strong- Stock prices reflect all information both public and private. (inside information).*Weak- Prices reflect all information that can be derived from trading data such as prices and volume.Semi-Strong: Prices reflect all publicly available information regarding the firms prospects. Financial Data, information about the industry, the firm management, etc.Strong- Stock prices reflect all information both public and private. (inside information).*Weak- Prices reflect all information that can be derived from trading data such as prices and volume.Semi-Strong: Prices reflect all publicly available information regarding the firms prospects. Financial Data, information about the industry, the firm management, etc.Strong- Stock prices reflect all information both public and private. (inside information).*Weak- Prices reflect all information that can be derived from trading data such as prices and volume.Semi-Strong: Prices reflect all publicly available information regarding the firms prospects. Financial Data, information about the industry, the firm management, etc.Strong- Stock prices reflect all information both public and private. (inside information).**Chartists, by definition, dont believe in efficient markets. They are using historical price and volume data to attempt to reap excess returns.Fundamental Analysis: Understanding the economic fundamentals of the firm, its industry and the economy. A semi-strong efficient market suggests fundamental analysis would not aid in stock picking.*

****Both of these are key points the students need to understand**Active management assumes markets are inefficient. Use either technical or fundamental analysis to pick stocks.Passive management tends to be the management style that fits the EMH. No reason to spend any money or make any effort to pick winners.*We talked about investor preferences due to level of risk aversion. Risk tolerance can change as you age!Highly taxed investors may dislike investments with large dividends. People may desire selling losers and winners together to minimize taxes.Other. Talk about a large manager at a Firm like GM. Would not want to hold more auto industry stock, due to his overweighting of wealth tied up in the auto industry.**Event Studies look at how quickly information is integrated into prices around an informational event. EMH suggests quick assimilation of information into prices.Do professional managers, use their resources and tools to outperform the market? EMH suggests professionals will not outperform the market.Are there specific trading rules that could make money? Use filter rules (ex. Buy after 20% price drop, sell after 20% gain)*Event Studies look at how quickly information is integrated into prices around an informational event. EMH suggests quick assimilation of information into prices.Do professional managers, use their resources and tools to outperform the market? EMH suggests professionals will not outperform the market.Are there specific trading rules that could make money? Use filter rules (ex. Buy after 20% price drop, sell after 20% gain)*Event Studies look at how quickly information is integrated into prices around an informational event. EMH suggests quick assimilation of information into prices.Do professional managers, use their resources and tools to outperform the market? EMH suggests professionals will not outperform the market.Are there specific trading rules that could make money? Use filter rules (ex. Buy after 20% price drop, sell after 20% gain)*Event Studies look at how quickly information is integrated into prices around an informational event. EMH suggests quick assimilation of information into prices.Do professional managers, use their resources and tools to outperform the market? EMH suggests professionals will not outperform the market.Are there specific trading rules that could make money? Use filter rules (ex. Buy after 20% price drop, sell after 20% gain)*With event studies we must examine prices and returns around the event date.For analysis of money manager performance we can compare returns to diversified index returns.For filter rules we can also compare the returns over time with market returns.*This might be an example of an event where the returns directly following the event are above zero; a good news event. Any type of event that has abnormal returns after the event should not be predictable.**Question: How do we determine if the returns are abnormal?Returns at any time t should be a function of the market returns the risk free rate and the market returns that occur during the same period.Abnormal returns are excess (unexpected returns)*Cumulating the excess returns over time we can see if information is integrated into prices before or after the event. Here it appears to have some information leaking into the price prior to the event date. See p. 285 for cumulative abnormal returns and earnings announcements. (Post-Earning announcement drift)*Big jump on Day 0, but no further drift up. Consistent with efficient marketsStudy is 1981*The leveling off point indicates when the market had fully digested the news. Note that for the positive report the news is fully digested in about 5 minutes. It took a little longer for the negative news to be fully reflected in market prices, that took about 12 minutes (Busse and Green, 2002, JFE 65)

*Magnitude- Even small changes in performance may be worthwhile for managers of large investments. Eg. $5 billion dollar portfolio. Use research to improve results by 1/10 of a percent per year = $5 million dollars in value. Problem is that these small changes in performance would be virtually impossible to measure since the standard deviation of portfolios like S&P 500 is 20% per year. Large portfolios may have more benefit to research.Selection Bias: Would anyone publish a money making scheme. The literature only sees the schemes that dont work.Lucky event: 10,000 people to flip coins 50 times. 2 people would likely flip 75% or more heads.Model misspecification: When we do risk adjustments. Who says we have the correct risk model.*Magnitude- Even small changes in performance may be worthwhile for managers of large investments. Eg. $5 billion dollar portfolio. Use research to improve results by 1/10 of a percent per year = $5 million dollars in value. Problem is that these small changes in performance would be virtually impossible to measure since the standard deviation of portfolios like S&P 500 is 20% per year. Large portfolios may have more benefit to research.Selection Bias: Would anyone publish a money making scheme. The literature only sees the schemes that dont work.Lucky event: 10,000 people to flip coins 50 times. 2 people would likely flip 75% or more heads.Model misspecification: When we do risk adjustments. Who says we have the correct risk model.*Magnitude- Even small changes in performance may be worthwhile for managers of large investments. Eg. $5 billion dollar portfolio. Use research to improve results by 1/10 of a percent per year = $5 million dollars in value. Problem is that these small changes in performance would be virtually impossible to measure since the standard deviation of portfolios like S&P 500 is 20% per year. Large portfolios may have more benefit to research.Selection Bias: Would anyone publish a money making scheme. The literature only sees the schemes that dont work.Lucky event: 10,000 people to flip coins 50 times. 2 people would likely flip 75% or more heads.Model misspecification: When we do risk adjustments. Who says we have the correct risk model.**NYSE stocks broken up into size deciles. This is driven by January returns! (The first two weeks). Arbel and Strebel claim this size effect is a neglected firm effect and is hence due to higher risk, not fully captured by the CAPM. Brooks and others have shown that these returns are hard to capture due to high trading costs and lower liquidity of small firms.*High book to market ratio may indicate the stock is out of favor (a value stock) and hence a good buy. It may also contain more financially distressed firms which would explain the higher return. Fama & French find that using this factor, the traditional beta becomes insignificant. This may imply inefficient pricing or it may indicate that this variable is proxying for a risk premium factor.*Rendleman, Jones and Latane results. These have been updated many times. Note the continual drift up after the earnings announcement date for the firms with the highest earnings surprises and the continual drift down for the firms with poor earnings surprises. This is termed the short term momentum effect and is counter to market efficiency. You apparently CAN earn +Abnormal Returns from this one, although logically this seems unlikely.*****The mean alpha is statistically equal to zero. This is Malkeils work and it uses the S&P500 as a benchmark which is probably the wrong benchmark given that many funds hold small stocks.*Belaboring the point? Not much persistence in performance over time.

Carhart 1997, JOF*Generally the passive portfolios outdo the managed portfolios.Most performance differences between managers appears to be related to trading turnover and high fees.What is the correct benchmark. Is the S&P 500 a broad enough benchmark portfolio.Style changes. For years small stocks under-performed and than over over performed the s&P. If funds held a lot of small stocks and benchmark was S&P could lead to strange results.Peter Lynch, Warren Buffet, John Templeton, and George Soros, appear even beyond the lucky event phenomenon.*Most of the findings suggest that the markets are fairly efficient, and technical analysis or fundamental analysis do not generally reap excess rewards. In technical analysis items like filter rules dont appear to make excess returns that outweigh the extra transaction costs.Jagadeesh and Titman (1993) find a momentum property (3-12 months) suggesting good and bad times persist, and profits could be made. (questionable)For fundamental analysis people question if the different ratios are just capturing returns associated with misspecified risk measurement.*Most of the findings suggest that the markets are fairly efficient, and technical analysis or fundamental analysis do not generally reap excess rewards. In technical analysis items like filter rules dont appear to make excess returns that outweigh the extra transaction costs.Jagadeesh and Titman (1993) find a momentum property (3-12 months) suggesting good and bad times persist, and profits could be made. (questionable)For fundamental analysis people question if the different ratios are just capturing returns associated with miss-specified risk measurement.*Most of the findings suggest that the markets are fairly efficient, and technical analysis or fundamental analysis do not generally reap excess rewards. In technical analysis items like filter rules dont appear to make excess returns that outweigh the extra transaction costs.Jagadeesh and Titman (1993) find a momentum property (3-12 months) suggesting good and bad times persist, and profits could be made. (questionable)For fundamental analysis people question if the different ratios are just capturing returns associated with miss-specified risk measurement.*Most of the findings suggest that the markets are fairly efficient, and technical analysis or fundamental analysis do not generally reap excess rewards.

But, be smart, use day of week effect small firm effect etc to your advantage.**You could skip this, it is mostly a restatement of prior implications.

Better shot at beating the competition by staying with what you know.Avoid the competition by finding stocks that are out of the limelight.*Some positive serial correlation exists.**Splits occur when stock prices move up out of the desirable trading range, so it is not unusual that they occur in periods of + ARs.****Book says consistent on c but might be able to use an option strategy to earn a + AR.**Good disciplined investing, but studies show it doesnt get you + ARs.***