tailieunhanh - CHAPTER SIX: ANALYSIS OF INFORMATION STRUCTURE ON THE FIANANCIAL MARKET

The Importance of Market Efficiency Understanding the If and How the EMH Principal can Affect Shareholder Wealth • Understanding how securities are valued is important because these valuation principles provide guidelines to managers how they should manage businesses on behalf of the shareholders. • It is the legal requirement and managerial responsibility for managers to act in the owners’ best interest. • The discount rate that represents shareholder’s required rate of return is established as a result of benchmark rates in the capital markets such as the Risk-Free Rate (RF) and the market risk premium | CHAPTER SIX ANALYSIS OF INFORMATION STRUCTURE ON THE FIANANCIAL MARKET 06 08 2011 1 The Importance of Market Efficiency Understanding the If and How the EMH Principal can Affect Shareholder Wealth Understanding how securities are valued is important because these valuation principles provide guidelines to managers how they should manage businesses on behalf of the shareholders. It is the legal requirement and managerial responsibility for managers to act in the owners best interest. The discount rate that represents shareholder s required rate of return is established as a result of benchmark rates in the capital markets such as the Risk-Free Rate RF and the market risk premium. A question MARKET PRICES REFLECT THE ACTIONS OF managers - If they do then managers must learn what actions they should take in order to fulfill their legal and managerial responsibilities to shareholders. 06 08 2011 2 The Importance of Market Efficiency Three Elements to Market Efficiency Operational Efficiency - Transactions costs are low thereby enhancing trading of securities Allocational Efficiency - There are enough securities to efficiently allocate risk Informational Efficiency - Market prices fairly and quickly reflect all available information. 06 08 2011