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The Efficient Market
Hypothesis
Chapter 11
Bodi Kane Marcus Ch 5
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Bodi Kane Marcus Ch 5
Random Walks and The Efficient
Market Hypothesis
• Random Walks : The theory that stock price
changes have the same distribution and are
independent of each other, so the past
movement or trend of a stock price or market
cannot be used to predict its future movement.
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Bodi Kane Marcus Ch 5
Random Walks and The Efficient
Market Hypothesis
• The Efficient Market Hypothesis: An investment
theory that states it is impossible to "beat the
market" because stock market efficiency causes
existing share prices to always incorporate and
reflect all relevant information. According to the
EMH, stocks always trade at their fair value on
stock exchanges, making it impossible for
investors to either purchase undervalued stocks
or sell stocks for inflated prices.
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Bodi Kane Marcus Ch 5
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Bodi Kane Marcus Ch 5
Random Walks and The Efficient
Market Hypothesis
• Competition as the source of efficiency
• Versions of the efficient market hypothesis
• Weak form EMH
• Semi strong EMH
• Strong form EMH
Weak form EMH
Semistrong Form EMH
Strong form EMH
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Bodi Kane Marcus Ch 5
Implication of the EMH
• Technical analysis
• Fundamental analysis
• Active versus passive portfolio
management
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Bodi Kane Marcus Ch 5
Implication of the EMH
• Technical analysis: A method of
evaluating securities by
analyzing statistics generated by
market activity, such as past
prices and volume.
• Technical analysts do not
attempt to measure a security's
intrinsic value, but instead use
charts and other tools to identify
patterns that can suggest future
activity.
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Bodi Kane Marcus Ch 5
Implication of the EMH
• Fundamental analysis : A method of
evaluating a security by attempting to
measure its intrinsic value by
examining related economic, financial
and other qualitative and quantitative
factors.
• Fundamental analysts attempt to
study everything that can affect the
security's value, including
macroeconomic factors and
individually specific factors.
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Bodi Kane Marcus Ch 5
Implication of the EMH
• Active versus passive portfolio management
• Active asset management is based on a
belief that a specific style of management or
analysis can produce returns that beat the
market
• Passive asset management is based on the
belief that: Markets are efficient, Market
returns, cannot be surpassed regularly over
time, Low-cost investments held for the
long-term will provide the best returns.
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Bodi Kane Marcus Ch 5
Event studies
• An empirical study performed on a security that
has experienced a significant catalyst
occurrence, and has subsequently changed
dramatically in value as a result of that catalyst.
The event can have either a positive or negative
effect on the value of the security.
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Bodi Kane Marcus Ch 5
Studi Empirik Event Study di Indonesia
• Pengaruh pengumuman merger dan akuisisi (Anggraini
Kurniawan, 2001)
• Analisa pengaruh lebaran sebagai bentuk anomali pada
pasar saham di bursa efek jakarta (event study peristiwa
lebaran tahun 2001, Dwi Nur Indahsari, 2002)
• Reaksi pasar modal indonesia terhadap peristiwa politik
dalam negeri (event study : peristiwa pelantikan
Megawati Soekarnoputri sebagai Presiden RI ke-5)
(Elizabeth Alim, 2002)
• Pengaruh pengumuman right issue terhadap kinerja
perusahaan dan abnormal return serta volume
perdagangan saham (event study terhadap-perusahaan
manufaktur yang listing di Bursa Efek Jakarta (Daniel
Wibisono, 2003)
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Bodi Kane Marcus Ch 5
Studi Empirik Event Study di Indonesia
• Reaksi pasar terhadap publikasi laporan keuangan
(event study pada perusahaan non manufaktur yang
terdaftar di BEJ tahun 2004-2006 (Siswojo, Ivana
M, 2007)
• Reaksi pasar terhadap publikasi laporan keuangan
(event study pada perusahaan manufaktur yang
terdaftar di BEJ tahun 2004-2006) (Thedja,
Caroline, 2007)
• Analisa perbedaan abnormal return dan trading
volume activity sebelum dan sesudah pemilu 1999
dan 2004 (analisa pada emitmen yang tergolong lq45 pada periode 1999 dan 2004) (Wibowo, Nur
Cahyo, 2009)
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Bodi Kane Marcus Ch 5
Studi Empirik Event Study di Indonesia
• Analisis January effect pada IHSG, indeks LQ45,
dan saham individual (studi kasus terhadap 34
saham yang diperdagangkan periode 1997-2002
(Fitriani, Alexandra, 2003)
• Analisis terjadinya january effect dan pengaruhnya
terhadap return obligasi korporasi di bursa efek
Surabaya tahun 2003 (Caroline, Nesia, 2005)
• Pengujian day-of-the-week effect pada bursa efek
Jakarta periode 1 Juli 1997-31 Juli 1998 (Helen,
1999)
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Bodi Kane Marcus Ch 5
Are market Efficient ?
• The issues
▫ The magnitude issue
▫ The selection bias issue
▫ The lucky event issue
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Bodi Kane Marcus Ch 5
Weak form tests: Patterns in stock
returns
• Returns over short horizons
• Returns over long horizons
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Bodi Kane Marcus Ch 5
Semi strong tests: Market anomalies
• The small firm in January effects
• The neglected firm effect and liquidity
effect
• Book to market ratios
• Post-earnings announcements price drift
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Bodi Kane Marcus Ch 5
Semi strong tests: Market anomalies
• The small firm in January effects
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Bodi Kane Marcus Ch 5
Semi strong tests: Market anomalies
• The neglected firm effect and liquidity effect
• Neglected firms are usually the smaller firms that
analysts tend to ignore.
• Information available on these smaller companies
tends to be limited to those items that are required
by law, such as the 10-K. Blue-chip firms, on the
other hand, have a higher profile, which provides
large amounts of high quality information (to
institutional investors such as pension or mutual
fund companies.
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Bodi Kane Marcus Ch 5
Semi strong tests: Market anomalies
• Book to market ratios
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Bodi Kane Marcus Ch 5
Semi strong tests: Market anomalies
• Post-earnings announcements price drift
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Bodi Kane Marcus Ch 5
Semi strong tests: Market anomalies
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Bodi Kane Marcus Ch 5
Strong form tests:
• Inside information
• Interpreting the evidence
• Mutual fund and analyst
performance Risk premiums or
inefficiencies
• Anomalies or data mining
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Bodi Kane Marcus Ch 5
Strong form tests:
• Inside information
• Interpreting the evidence
• Mutual fund and analyst
performance Risk premiums or
inefficiencies
• Anomalies or data mining
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Bodi Kane Marcus Ch 5
Strong form tests:
• Inside information
• Interpreting the evidence
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Bodi Kane Marcus Ch 5
Strong form tests:
• Mutual fund and analyst performance
Risk premiums or inefficiencies
• Anomalies or data mining
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The Noisy market hypothesis and
fundamental indexing
Bodi Kane Marcus Ch 5
• 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. It argues
that prices can be influenced by
speculators and momentum traders, as
well as by insiders and institutions that
often buy and sell stocks for reasons
unrelated to fundamental value, such
as for diversification, liquidity and
taxes
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The Noisy market hypothesis and
fundamental indexing
Bodi Kane Marcus Ch 5
• Fundamentally based indexes are
indices in which stocks are weighted by one
of many economic fundamental factors,
especially accounting figures which are
commonly used when performing corporate
valuation, or by a composite of several
fundamental factors
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Bodi Kane Marcus Ch 5
Mutual fund and analyst performance
• Stock market analyst
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Bodi Kane Marcus Ch 5
Mutual fund and analyst performance
• Mutual Fund Managers
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Bodi Kane Marcus Ch 5
Mutual fund and analyst performance
• Mutual Fund Managers
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Bodi Kane Marcus Ch 5
Mutual fund and analyst performance
• Stock market analyst
• Survivorship bias in mutual fund studies
▫ The managers who perform well in one period tend to
be above average performers in subsequent periods
▫ Empirical studies: 600 managers in mutual fund
company (Tab 11.2)
First Period
Second Period
Winners
Losers
Winners
0.25
0.25
Losers
0.25
0.25
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Bodi Kane Marcus Ch 5
Mutual fund and analyst performance
• So, are markets efficient?
▫ Markets are very efficient, but that rewards
to the especially diligent, intelligent, or
creative may in fact be waiting
▫ (Pasar sangat efisien, tetapi imbalan masih tetap
menunggu bagi mereka yang paling rajin, cerdas
atau kreatif )
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Tugas Kelompok
Klp
Felix
RDPU
Venny
Schroder Dana
Likuid
Schroder Dana Obl Panin Dana
Ekstra
Unggulan
Timothy
Manulife DK
Manulife Obl Ngr
Hilda
Mathew
Ivana
Gentry
Mandiri Investa PU Mandiri Investa DU Mandiri Investa
Mandiri Investa
Aktif
Atraktif
Mandiri Investa PU Fortis rUPIAH Plus Panin Dana
Schroder Dana
II
Unggulan
Prestasi Plus
Manulife
Manulife
Manulife Dana
Manulife Dana
DanaPasar Uang
Pendapatan Tetap Berimbang
Ekuitas
Batavia Dana Kas Manulife Obl Neg Manulife Dana
Panin Dana Prima
Maxima
Indonesia
Bertumbuh
Berimbang
Manulife Dana Kas Manulife Obl
Manulife Dan Stabil Manulife Dana
Unggulan
Berimb
Saham
Danny
RDPT
Bodi Kane Marcus Ch 5
Mandiri Investa PU Fortis Prima II
RDC
RDS
Fortis Pesona
Schroder Dana
Prestasi Plus
Panin Dana Maxima
Fortis Ekuitra
Manulife Saham
Andalan
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Reksadana Manulife
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Bodi Kane Marcus Ch 5
Manulife Dana Pasar Uang
Manulife Dana Pasar Uang Syariah
Manulife Pendapatan Tetap Dollar (Rp)
Manulife Pendapatan Tetap Dollar (USD)
Manulife Dana Ekuitas
Manulife Dana Ekuitas Syariah
Manulife Dana Berimbang Syariah
Manulife Dana Berimbang
Manulife Pendapatan Tetap Korporasi
Manulife Pendapatan Tetap Negara
Manulife Dana Ekuitas Indonesia - China (Rp)
Manulife Dana Ekuitas Indonesia - China (USD)
• Fund Fact Sheet
• http://www.manulife-indonesia.com/Front/FFS.htm
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Bodi Kane Marcus Ch 5
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Bodi Kane Marcus Ch 5