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Efficient-market hypothesis

Index Efficient-market hypothesis

The efficient-market hypothesis (EMH) is a theory in financial economics that states that asset prices fully reflect all available information. [1]

107 relations: Adam Smith, Adaptive market hypothesis, Alfred Cowles, Amos Tversky, Andrey Kolmogorov, Annuity, Arbitrage, Asset, Asset pricing, Basic Inc. v. Levinson, Behavioral economics, Benoit Mandelbrot, Beta (finance), Bitcoin, Bond (finance), Bond valuation, Capital asset pricing model, CFA Institute, Chicago school of economics, Cognitive bias, Complexity, Confidence, Daniel Kahneman, David Dreman, Derivative (finance), Direct evidence, Diversification (finance), Dumb agent theory, Erica P. John Fund, Inc. v. Halliburton Co., Eugene Fama, Exaggeration, Fama–French three-factor model, Federal Reserve System, Financial crisis of 2007–2008, Financial economics, Financial instrument, Financial market efficiency, Financial Times, Fraud-on-the-market theory, Fundamental analysis, Great Recession, Growth stock, HarperCollins, Herd behavior, Hyperbolic discounting, Index fund, Indifference curve, Information, Information bias (psychology), Insider trading, ..., Isocost, Isoquant, Jeremy Grantham, John Maynard Keynes, John Quiggin, Joseph L. Doob, Journal of Business Finance & Accounting, Jules Regnault, Kenneth French, Leonard Jimmie Savage, Loss aversion, Louis Bachelier, Marginal rate of substitution, Marginal rate of technical substitution, Market anomaly, Market liquidity, Martin Wolf, Modern portfolio theory, Mortgage loan, Noisy market hypothesis, Pareto efficiency, Paul McCulley, Paul Samuelson, Paul Slovic, Paul Volcker, Perfect competition, PIMCO, Production–possibility frontier, Random walk hypothesis, Rational expectations, Richard Posner, Richard Thaler, Roger Lowenstein, Roll's critique, Securities Class Action, Sine wave, Springer Science+Business Media, Stock, Stock split, Tangent, Technical analysis, The Globe and Mail, The Jerusalem Post, The New Palgrave Dictionary of Economics, The New York Review of Books, The New York Times, The New Yorker, The Superinvestors of Graham-and-Doddsville, The Sydney Morning Herald, The Use of Knowledge in Society, The Washington Post, Transparency (market), Tshilidzi Marwala, Utility, Value investing, Warren Buffett, William Feller. Expand index (57 more) »

Adam Smith

Adam Smith (16 June 1723 NS (5 June 1723 OS) – 17 July 1790) was a Scottish economist, philosopher and author as well as a moral philosopher, a pioneer of political economy and a key figure during the Scottish Enlightenment era.

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Adaptive market hypothesis

The adaptive market hypothesis, as proposed by Andrew Lo, is an attempt to reconcile economic theories based on the efficient market hypothesis (which implies that markets are efficient) with behavioral economics, by applying the principles of evolution to financial interactions: competition, adaptation and natural selection.

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Alfred Cowles

Alfred Cowles III (15 September 1891 – 28 December 1984) was an American economist, businessman and founder of the Cowles Commission.

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Amos Tversky

Amos Nathan Tversky (עמוס טברסקי; March 16, 1937 – June 2, 1996) was a cognitive and mathematical psychologist, a student of cognitive science, a collaborator of Daniel Kahneman, and a figure in the discovery of systematic human cognitive bias and handling of risk.

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Andrey Kolmogorov

Andrey Nikolaevich Kolmogorov (a, 25 April 1903 – 20 October 1987) was a 20th-century Soviet mathematician who made significant contributions to the mathematics of probability theory, topology, intuitionistic logic, turbulence, classical mechanics, algorithmic information theory and computational complexity.

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Annuity

An annuity is a series of payments made at equal intervals.

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Arbitrage

In economics and finance, arbitrage is the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices.

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Asset

In financial accounting, an asset is an economic resource.

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Asset pricing

In financial economics, asset pricing refers to a formal treatment and development of two main pricing principles, outlined below.

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Basic Inc. v. Levinson

Basic Inc.

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Behavioral economics

Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors on the economic decisions of individuals and institutions and how those decisions vary from those implied by classical theory.

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Benoit Mandelbrot

Benoit B.  Mandelbrot  (20 November 1924 – 14 October 2010) was a Polish-born, French and American mathematician and polymath with broad interests in the practical sciences, especially regarding what he labeled as "the art of roughness" of physical phenomena and "the uncontrolled element in life".

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Beta (finance)

In finance, the beta (β or beta coefficient) of an investment indicates whether the investment is more or less volatile than the market as a whole.

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Bitcoin

Bitcoin (₿) is the world's first cryptocurrency, a form of electronic cash.

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Bond (finance)

In finance, a bond is an instrument of indebtedness of the bond issuer to the holders.

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Bond valuation

Bond valuation is the determination of the fair price of a bond.

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Capital asset pricing model

In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a well-diversified portfolio.

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CFA Institute

CFA Institute is a global association of investment professionals.

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Chicago school of economics

The Chicago school of economics is a neoclassical school of economic thought associated with the work of the faculty at the University of Chicago, some of whom have constructed and popularized its principles.

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Cognitive bias

A cognitive bias is a systematic pattern of deviation from norm or rationality in judgment.

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Complexity

Complexity characterises the behaviour of a system or model whose components interact in multiple ways and follow local rules, meaning there is no reasonable higher instruction to define the various possible interactions.

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Confidence

Confidence has a common meaning of a certainty about handling something, such as work, family, social events, or relationships.

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Daniel Kahneman

Daniel Kahneman (דניאל כהנמן; born March 5, 1934) is an Israeli-American psychologist notable for his work on the psychology of judgment and decision-making, as well as behavioral economics, for which he was awarded the 2002 Nobel Memorial Prize in Economic Sciences (shared with Vernon L. Smith).

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David Dreman

David Dreman (born 1936) is an investor, who founded and is Chairman of Dreman Value Management, an investment company.

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Derivative (finance)

In finance, a derivative is a contract that derives its value from the performance of an underlying entity.

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Direct evidence

Direct evidence supports the truth of an assertion (in criminal law, an assertion of guilt or of innocence) directly, i.e., without an intervening inference.

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Diversification (finance)

In finance, diversification is the process of allocating capital in a way that reduces the exposure to any one particular asset or risk.

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Dumb agent theory

The dumb agent theory (DAT) states that many people making individual buying and selling decisions will better reflect true value than any one individual can.

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Erica P. John Fund, Inc. v. Halliburton Co.

Erica P. John Fund, Inc.

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Eugene Fama

Eugene Francis "Gene" Fama (born February 14, 1939) is an American economist, best known for his empirical work on portfolio theory, asset pricing and the ‘Efficient Market hypothesis’.

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Exaggeration

Exaggeration is a representation of something in an excessive manner.

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Fama–French three-factor model

In asset pricing and portfolio management the Fama–French three-factor model is a model designed by Eugene Fama and Kenneth French to describe stock returns.

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Federal Reserve System

The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central banking system of the United States of America.

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Financial crisis of 2007–2008

The financial crisis of 2007–2008, also known as the global financial crisis and the 2008 financial crisis, is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s.

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Financial economics

Financial economics is the branch of economics characterized by a "concentration on monetary activities", in which "money of one type or another is likely to appear on both sides of a trade".

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Financial instrument

Financial instruments are monetary contracts between parties.

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Financial market efficiency

In the 1970s Eugene Fama defined an efficient financial market as "one in which prices always fully reflect available information”.

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Financial Times

The Financial Times (FT) is a Japanese-owned (since 2015), English-language international daily newspaper headquartered in London, with a special emphasis on business and economic news.

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Fraud-on-the-market theory

The fraud-on-the-market theory is the idea that stock prices are a function of all material information about the company and its business.

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Fundamental analysis

Fundamental analysis, in accounting and finance, is the analysis of a business's financial statements (usually to analyze the business's assets, liabilities, and earnings); health; and its competitors and markets.

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Great Recession

The Great Recession was a period of general economic decline observed in world markets during the late 2000s and early 2010s.

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Growth stock

In finance, a growth stock is a stock of a company that generates substantial and sustainable positive cash flow and whose revenues and earnings are expected to increase at a faster rate than the average company within the same industry.

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HarperCollins

HarperCollins Publishers L.L.C. is one of the world's largest publishing companies and is one of the Big Five English-language publishing companies, alongside Hachette, Macmillan, Penguin Random House, and Simon & Schuster.

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Herd behavior

Herd behavior describes how individuals in a group can act collectively without centralized direction.

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Hyperbolic discounting

In economics, hyperbolic discounting is a time-inconsistent model of delay discounting.

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Index fund

An index fund (also index tracker) is a mutual fund or exchange-traded fund (ETF) designed to follow certain preset rules so that the fund can a specified basket of underlying investments.

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Indifference curve

In economics, an indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent.

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Information

Information is any entity or form that provides the answer to a question of some kind or resolves uncertainty.

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Information bias (psychology)

Information bias is a type of cognitive bias that describes the tendency to seek information when it does not affect action.

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Insider trading

Insider trading is the trading of a public company's stock or other securities (such as bonds or stock options) by individuals with access to nonpublic information about the company.

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Isocost

In economics an isocost line shows all combinations of inputs which cost the same total amount.

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Isoquant

An isoquant (derived from quantity and the Greek word iso, meaning equal) is a contour line drawn through the set of points at which the same quantity of output is produced while changing the quantities of two or more inputs. While an indifference curve mapping helps to solve the utility-maximizing problem of consumers, the isoquant mapping deals with the cost-minimization problem of producers. Isoquants are typically drawn along with isocost curves in capital-labor graphs, showing the technological tradeoff between capital and labor in the production function, and the decreasing marginal returns of both inputs. Adding one input while holding the other constant eventually leads to decreasing marginal output, and this is reflected in the shape of the isoquant. A family of isoquants can be represented by an isoquant map, a graph combining a number of isoquants, each representing a different quantity of output. Isoquants are also called equal product curves. An isoquant shows that extent to which the firm in question has the ability to substitute between the two different inputs at will in order to produce the same level of output. An isoquant map can also indicate decreasing or increasing returns to scale based on increasing or decreasing distances between the isoquant pairs of fixed output increment, as output increases. If the distance between those isoquants increases as output increases, the firm's production function is exhibiting decreasing returns to scale; doubling both inputs will result in placement on an isoquant with less than double the output of the previous isoquant. Conversely, if the distance is decreasing as output increases, the firm is experiencing increasing returns to scale; doubling both inputs results in placement on an isoquant with more than twice the output of the original isoquant. As with indifference curves, two isoquants can never cross. Also, every possible combination of inputs is on an isoquant. Finally, any combination of inputs above or to the right of an isoquant results in more output than any point on the isoquant. Although the marginal product of an input decreases as you increase the quantity of the input while holding all other inputs constant, the marginal product is never negative in the empirically observed range since a rational firm would never increase an input to decrease output. An isoquants shows all those combinations of factors which produce same level of output. An isoquants is also known as equal product curve or iso-product curve.

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Jeremy Grantham

Robert Jeremy Goltho Grantham CBE (born 6 October 1938) is a British investor and co-founder and chief investment strategist of Grantham, Mayo, & van Otterloo (GMO), a Boston-based asset management firm.

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John Maynard Keynes

John Maynard Keynes, 1st Baron Keynes (5 June 1883 – 21 April 1946), was a British economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments.

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John Quiggin

John Quiggin (born 29 March 1956) is an Australian economist, a Professor at the University of Queensland.

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Joseph L. Doob

Joseph Leo "Joe" Doob (February 27, 1910 – June 7, 2004) was an American mathematician, specializing in analysis and probability theory.

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Journal of Business Finance & Accounting

The Journal of Business Finance & Accounting is a peer-reviewed academic journal published by John Wiley & Sons.

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Jules Regnault

Jules Augustin Frédéric Regnault (1 February 1834, Béthencourt – 9 December 1894, Paris) was a French stock broker's assistant who first suggested a modern theory of stock price changes in Calcul des Chances et Philosophie de la Bourse (1863) and used a random walk model.

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Kenneth French

Kenneth Ronald "Ken" French (born March 10, 1954) is the Roth Family Distinguished Professor of Finance at the Tuck School of Business, Dartmouth College.

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Leonard Jimmie Savage

Leonard Jimmie Savage (born Leonard Ogashevitz; 20 November 1917 – 1 November 1971) was an American mathematician and statistician.

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Loss aversion

In cognitive psychology and decision theory, loss aversion refers to people's tendency to prefer avoiding losses to acquiring equivalent gains: it is better to not lose $5 than to find $5.

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Louis Bachelier

Louis Jean-Baptiste Alphonse Bachelier (March 11, 1870 – April 28, 1946) was a French mathematician at the turn of the 20th century.

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Marginal rate of substitution

In economics, the marginal rate of substitution (MRS) is the rate at which a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility.

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Marginal rate of technical substitution

In microeconomic theory, the Marginal Rate of Technical Substitution (MRTS)—or Technical Rate of Substitution (TRS)—is the amount by which the quantity of one input has to be reduced (-\Delta x_2) when one extra unit of another input is used (\Delta x_1.

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Market anomaly

A market anomaly (or market inefficiency) in a financial market is a price and/or rate of return distortion that seems to contradict the efficient-market hypothesis.

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Market liquidity

In business, economics or investment, market liquidity is a market's feature whereby an individual or firm can quickly purchase or sell an asset without causing a drastic change in the asset's price.

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Martin Wolf

Martin Harry Wolf, CBE (born 1946) is a British journalist who focuses on economics.

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Modern portfolio theory

Modern portfolio theory (MPT), or mean-variance analysis, is a mathematical framework for assembling a portfolio of assets such that the expected return is maximized for a given level of risk.

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Mortgage loan

A mortgage loan, or simply mortgage, is used either by purchasers of real property to raise funds to buy real estate, or alternatively by existing property owners to raise funds for any purpose, while putting a lien on the property being mortgaged.

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Noisy market hypothesis

In finance, the noisy market hypothesis contrasts the efficient-market hypothesis in that it claims that the prices of securities are not always the best estimate of the true underlying value of the firm.

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Pareto efficiency

Pareto efficiency or Pareto optimality is a state of allocation of resources from which it is impossible to reallocate so as to make any one individual or preference criterion better off without making at least one individual or preference criterion worse off.

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Paul McCulley

Paul Allen McCulley (born March 13, 1957) is an American economist and former managing director at PIMCO.

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Paul Samuelson

Paul Anthony Samuelson (15 May 1915 – 13 December 2009) was an American economist and the first American to win the Nobel Memorial Prize in Economic Sciences.

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Paul Slovic

Paul Slovic (born 1938 in Chicago) is a professor of psychology at the University of Oregon and the president of Decision Research.

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Paul Volcker

Paul Adolph Volcker Jr. (born September 5, 1927) is an American economist.

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Perfect competition

In economics, specifically general equilibrium theory, a perfect market is defined by several idealizing conditions, collectively called perfect competition.

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PIMCO

Pacific Investment Management Company, LLC (commonly called PIMCO), is an American investment management firm headquartered in Newport Beach, California, with over 2,000 employees working in 12 offices across 11 countries, and $1.77 trillion in assets under management as of 31 March 2018.

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Production–possibility frontier

A production–possibility frontier (PPF) or production possibility curve (PPC) is the possible tradeoff of producing combinations of goods with constant technology and resources per unit time.

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Random walk hypothesis

The random walk hypothesis is a financial theory stating that stock market prices evolve according to a random walk (so price changes are random) and thus cannot be predicted.

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Rational expectations

In economics, "rational expectations" are model-consistent expectations, in that agents inside the model are assumed to "know the model" and on average take the model's predictions as valid.

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Richard Posner

Richard Allen Posner (born January 11, 1939) is an American jurist and economist who was a United States Circuit Judge of the United States Court of Appeals for the Seventh Circuit in Chicago from 1981 until 2017, and is a Senior Lecturer at the University of Chicago Law School.

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Richard Thaler

Richard H. Thaler (born September 12, 1945) is an American economist and the Charles R. Walgreen Distinguished Service Professor of Behavioral Science and Economics at the University of Chicago Booth School of Business.

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Roger Lowenstein

Roger Lowenstein (born 1954) is an American financial journalist and writer.

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Roll's critique

Roll's critique is a famous analysis of the validity of empirical tests of the capital asset pricing model (CAPM) by Richard Roll.

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Securities Class Action

A securities class action, or securities fraud class action, is a lawsuit filed by investors who bought or sold a company’s securities within a specific period of time (known as a “class period”) and suffered economic injury as a result of violations of the securities laws.

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Sine wave

A sine wave or sinusoid is a mathematical curve that describes a smooth periodic oscillation.

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Springer Science+Business Media

Springer Science+Business Media or Springer, part of Springer Nature since 2015, is a global publishing company that publishes books, e-books and peer-reviewed journals in science, humanities, technical and medical (STM) publishing.

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Stock

The stock (also capital stock) of a corporation is constituted of the equity stock of its owners.

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Stock split

A stock split or stock divide increases the number of shares in a company.

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Tangent

In geometry, the tangent line (or simply tangent) to a plane curve at a given point is the straight line that "just touches" the curve at that point.

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Technical analysis

In finance, technical analysis is an analysis methodology for forecasting the direction of prices through the study of past market data, primarily price and volume.

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The Globe and Mail

The Globe and Mail is a Canadian newspaper printed in five cities in western and central Canada.

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The Jerusalem Post

The Jerusalem Post is a broadsheet newspaper based in Jerusalem, founded in 1932 during the British Mandate of Palestine by Gershon Agron as The Palestine Post.

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The New Palgrave Dictionary of Economics

The New Palgrave Dictionary of Economics (2008), 2nd ed., is an eight-volume reference work on economics, edited by Steven N. Durlauf and Lawrence E. Blume and published by Palgrave Macmillan.

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The New York Review of Books

The New York Review of Books (or NYREV or NYRB) is a semi-monthly magazine with articles on literature, culture, economics, science and current affairs.

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The New York Times

The New York Times (sometimes abbreviated as The NYT or The Times) is an American newspaper based in New York City with worldwide influence and readership.

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The New Yorker

The New Yorker is an American magazine of reportage, commentary, criticism, essays, fiction, satire, cartoons, and poetry.

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The Superinvestors of Graham-and-Doddsville

"The Superinvestors of Graham-and-Doddsville" is an article by Warren Buffett promoting value investing, published in the Fall, 1984 issue of Hermes, Columbia Business School magazine.

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The Sydney Morning Herald

The Sydney Morning Herald (SMH) is a daily compact newspaper published by Fairfax Media in Sydney, Australia.

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The Use of Knowledge in Society

"The Use of Knowledge in Society" is a scholarly article written by economist Friedrich Hayek, first published in the September 1945 issue of The American Economic Review.

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The Washington Post

The Washington Post is a major American daily newspaper founded on December 6, 1877.

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Transparency (market)

In economics, a market is transparent if much is known by many about: What products and services or capital assets are available, market depth (quantity available), what price, and where.

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Tshilidzi Marwala

Tshilidzi Marwala (OMB) born 28 July 1971 in Venda, Transvaal, South Africa is currently the Vice-Chancellor and Principal of the University of Johannesburg.

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Utility

Within economics the concept of utility is used to model worth or value, but its usage has evolved significantly over time.

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Value investing

Value investing is an investment paradigm which generally involves buying securities that appear underpriced by some form of fundamental analysis, though it has taken many forms since its inception.

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Warren Buffett

Warren Edward Buffett (born August 30, 1930) is an American business magnate, investor, and philanthropist who serves as the chairman and CEO of Berkshire Hathaway.

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William Feller

William "Vilim" Feller (July 7, 1906 – January 14, 1970), born Vilibald Srećko Feller, was a Croatian-American mathematician specializing in probability theory.

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Efficient Market Hypothesis, Efficient Markets Hypothesis, Efficient Markets Theory, Efficient capital markets, Efficient market, Efficient market hypothesis, Efficient market theory, Efficient markets, Efficient markets hypothesis, Efficient markets theory, Efficient-market theory, Hypothesis of market efficiency, Inefficient markets, Market efficiency, Market stability, Semi-strong form.

References

[1] https://en.wikipedia.org/wiki/Efficient-market_hypothesis

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