All cards
1
why are dealers guaranteed profit?
because they have access to a dealer market that allows them to quote asking or offer prices for the securities they sell, and by bidding on securities offered by other dealers
2
what is a limited order?
you buy at a predetermined price (real stock price could differ vastly)
3
what is a market order?
an order to buy/sell a stock at the market's Current best available price
4
what effects the interdealer market more than anything?
the morning news
5
specialist system
each stock is assigned to a specialist who is responsible fo maintaining orderly price movement and the liquidity of the market (sets the bid/ask prices)
6
what are investors in a specialist system
ouside customers
they are the ones who order shares by market orders (where order flows comes from)
they are the ones who order shares by market orders (where order flows comes from)
7
why are dealers guaranteed a profit?
because of the bis-ask spread, which is the transaction cost for outside customers (investors)
8
in a specialist system, what do brokers get out of it?
the service fee of brokering through them
9
in a specialist system, what do portfolio (hedge) fund managers get out of it?
paid a fee for their work, which is a percentage of the fund's average asset's
10
what does an "efficient" trade of stock cause? mainly from market competition and partially regulation
a real-time stock price, or a continual establishment of stock prices
11
what prices do we see as an investor (outside customer) in the market?
mid-quote, or average of the prices asked
12
what is weak form tests in terms of market efficiency hypothesis?
it focusses on assessing whether historical price or return information is already reflected in current market prices
it uses past information
it uses past information
13
what is semi-strong form tests in terms of market efficiency hypothesis?
this test assess the speed of stock price adjustment to public information, such as macroeconomic announcements, financial reports, or stock splits
includes public and past information
includes public and past information
14
what is strong form tests in terms of market efficiency hypothesis?
strong form examine whether security prices fully incorporate all available information, leaving no room for any group of investors to have exclusive access to information that could lead to higher expected returns
includes private, public and past information
includes private, public and past information
15
what is the market efficiency hypothesis?
a market is efficient when actual security prices = expected values (under the presumption that there is a linear relationship)
when this happens total excess = 0
when this happens total excess = 0
16
what is a submartingale
when expected returns based on information at the time is positive
important to the trading rule (you always increase your money)
important to the trading rule (you always increase your money)
17
how do we know to reject a null market hypothesis?
based on:
market equilibrium has the ability to capture security price movements accurately
efficincy of using the information that's avaliable
market equilibrium has the ability to capture security price movements accurately
efficincy of using the information that's avaliable
18
what about the 3 different types of tests supports the market efficiency hypothesis?
strong-form and semi-strong form tests performed ~the same for investors with/without private information, thus supporting market efficiency
19
why is the market efficiency hypothesis technically not testable and it can only be a theory?
The market equilibrium returns (or prices) are assumed to be some functions of the information set
The available information is assumed to be fully utilized by the market participants to form equilibrium returns and, thereby, current security prices
The available information is assumed to be fully utilized by the market participants to form equilibrium returns and, thereby, current security prices
20
what is systematic risk?
also known by market risk, it is measured by the covariance between stock's and the portfolio returns
21
what is covariance
the measurement of how much an individual stock contributes to the portfolio risk
22
what does the Security market line intercept signify
it shows the risk free rate (Rf) in the CAPM equation, or the expected return with 0 systematic (market) risk
23
What is the formula for present rate Rt?
when b=0, there is no relationship between the previous year and the current year's rate