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Two General Approaches to Finding Value

Two General Approaches to Finding Value. Technical Analysis Price and volume only Fundamental Analysis Financial statements P/E ratios, cash on hand, dividends. Efficient Markets Hypothesis: 3 Versions. Weak: Prices reflect all past publicly available information .

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Two General Approaches to Finding Value

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  1. Two General Approaches to Finding Value • Technical Analysis • Price and volume only • Fundamental Analysis • Financial statements • P/E ratios, cash on hand, dividends

  2. Efficient Markets Hypothesis: 3 Versions • Weak: Prices reflect all past publicly available information. • Prohibits profit from Technical Analysis • Semi-Strong: Weak + prices instantly change to reflect new public information. • Prohibits profit from T.A. & Fundamental Analysis • Strong: Semi-Strong + prices instantly reflect even hidden or "insider" information. • Prohibits profit from insider information • http://en.wikipedia.org/wiki/Efficient-market_hypothesis

  3. Is the EMH True? Shiller, Robert (2005). Irrational Exuberance (2d ed.).

  4. Behavioral Economics: Argues Against EMH Cognitive biases such as • overconfidence, • overreaction, • representative bias, • information bias.

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