2121€

→ CAPM
anomalies
→ APT -
significance of
--
financial
market
calendar
anomalies
anomalies

-
size -

January
weekend
- DIM ratio -

- momentum
É
liquidity
Monday
✓
-

effect
t
close Monday oken
Friday to Monday
to Monday close
open

close
Friday close -

Monday
=
Monday effort
open
Friday
lose -

Monday
= weekend effect
close
Monday oben
-

Monday
=
trading effect
 Fama Thanh
3
factors
book
SMB =
small company ,
high
• 6 portfolios

) /z ( But BN c) Is
@ SN est -
+ ☐
t
SMBBIM =

)/ IBR + BN -113W )§
§ Sw s
-

Sn t
SMB op = R e

I
operating
point
T weak
robust ,

highpoint
salts IBC -1 BNTBA ) 13
SMB ;w ( Sc c- SN t
-

conservative aggressive
Binn ) 13
⑤mBan
SM
SMB opt
SMB = c-

→
small 1--1 N

100
companies £ , big _É ,

shorting tportfoleo
2×2

SMB = ⑤ + Slt sre swe se e BA ) /6

Bc + BA ) 16
( Bnt Blt Bre Bwe
-
 2424242

SMB =

(
sure -1

C-
SURA -1

SLRA +
SHWC

SLWC
c-

+
SUWA
SLWA ) /g
+ SLRC

(
BURC

+
BLRC
+

t
BURA

BLRA
c-

+
Brew

Bcwc
c c-

+
BUWA
Bcwa ) ¢8

91212J
HML
RMW

~xz HML =
s@ + BH )/ ~
-
( SL + B. 2) 12

HML = -
SL ) +
( Bn -
Bc ) ) /
z
an

UML
2×42×2

RMB

RMB = KSR - Sw ) + ( BR -
Dw )) 12
2×2

) /
SLRC -1 SLRA

(
MRC + SHRA -1
2×242×2 RMB = g
t BLRC + BLRA
1- BURC -1 BURA

)/
Scwc -1 SLWA
SHWA c-
( g
(
+
SHWC
☐ CWA
-

Bcwct
+ Bnwct Blewitt

CMA
=

( +
sure
Bure
+

+
snwctscrcescwc
Bnwct BLRC t BLWC ) / g

)
SCWA
SHRA SUWA -1 SLRA -1
/ g
(
-1

DLRA
+
BLWA
-

+ BURA TBH WAT

Iffiiuntmark__:
between market price and intrinsic
-

the errors

value are
unbiased
between two random
-
the deviations are

uncorrelated with other

and any
variable
observable
undervalued
-
not possible to identify
assets
or overvalued
random walk
-
stock prices follow a

ntomsofeffiemy :

kellie
stock prices reflect all
information
weakly
.
: ,

cannot brediut future brine from past

random walk
price follows
Fest test
autocorrelation , runs

and around one public event

Sanitary : in
to
,

return is close
the cumulative causes

zero

such public or private

strong there is no
:

encess returns
information to
gain
tÑ"S¥# g 6.5
-
,
R ,
59.7
T
R
,
18.5
-

R,
,
180-61
+
Ra
,

183 .
7
,
29.3
+

of 5
=
no runs

R = 5
( t )
me
=3

nz
=3 C- )

II.
I
v. +

•
=anm¥÷÷
limit = u±z
-

2- = 1.96

(µ -
1.960
,
let 1.96 a)
£

he 2

if u <
say
random
walk being followed
hrentitwdy
-

money managers
cannot systematically
returns
get positive
recess

if not
does not hold because we
may
-
Emre

not valerate Ela) properly

I
do not what it is f- of

Behavioral finance
a- mixed
macho
2

inefficient of obthaioueal lies

market of individual investors

-
noise trading \ behar
workmate
.

-
investor sentiment _
roup fin
Marar

\
.
limits to
trading uh .

fin
1012121€

divided announcement

✗ Y z on 31st De 2017

E ( lx ) = 1. 25 -10.92 In

E Isu ) =
1.39T .
t 1.039m

É lez ) =
1.78T . t 2. 079m

- historical data

-
actual returns
-
market returns

F÷÷Y÷Y"I
D
?

AAR = A A i Ai
7
,
2-
,

s
-

]
-

A-
AAR ~
=
A -

z
Ao
A- 3
-

calculate cumulative average

annual return = A - STA -
z
+ A- ( +
Ao
TAITA + A
-
]
if CAAR =0

market is semi
strongly efficient
else it is inefficient

valuation
-
corporate - investment decision
Fame capital stature
dividend decisions

capital stuntmen
7-ators
affecting
decisions

far shields

-
expected cost of financial distress

signalling stemming from asymmetric

information
-
management discipline
-

financial activities
 tan shields
-
debt has tan shield
cost redeems ten
-

bankruptcy
advantages

debt equity

*
cost benefits

optimal capital structure

h value at
of firm man

particular DIE

Peeking order
Theory
①imtunaleo¥
② debt financing
③ new / eternal equity
 know more than esteemed
managers
investors and issue new
equity
overvalued
when it is .

smiting
shareholders retract more value
from
the firm .

equity
Information make
raising
new
gap
charge premium
they
more
costlier as

managementdiseipkiee
does
not need
even
if company
debt , sometimes board forces
make them
managers
to go for
it makes them more
debt as

disciplined

+ ve → DIE
 fimanialflenilility
makes
equity financing
more
'

need
-

flexible as no to
repay /reward
-
ve → DIE

OEherkheories_
lifecycle theory
:
•

middle different
beginning
. .

,
,

kind of
finning

industry characteristics
- nature of the product
service
-

capital intensive or

tangible products or
intangible
-

more debt for tangible products

to
as
they need more
buy
the assets I fined capital)
for eternal
to do
-
easier agency
valuation of physical assets
missed : 1112122

☒n
Biases
① limited information
trot complete or realistic
⑤ solutions or decisions are
sub optimal
-

/
not optimal

decisions biased
unintentionally
are

Bias :
error caused by systematically
outcome over other
favouring some

decisions caused
Irrational financial are

due to

① faulty cognitive reasoning

② influence of emotions / feelings

thumb
Heuristics
:
rule of
&
biases come from beliefs , judgement preferences
 Biases can
be
psychological ,
social
,

self -

actualization

Biases
=
hndiioial
cognitive
( impulse ,
from basie
intuition
1 stems ,

statistical information feelings ,

etc
)
processing or memory loss aversion
eg
,
,

errors ) overconfidence ,

control Eaters
self , ago,

endowment effect ,

aversion
regret

information browsing
belief bias
fsreservancl
bias
•

browsing errors

psychological bias
anchoring framing
-

disodanee
, ,

eg
:
cognitive ,
mental
accounting
confirmation
,

conservativeness ,

illusion
,
aailaliky ,
intone
,

representation , of safe attribution

,

wonted
recency
,
 cognitive Dissonance :

imbalance that when

state of
-
occur

cognition intersect
contradictory

.÷÷÷÷
a
decision was
not right

the
change

lad%FFaiw.my#d.soname/
belief

in
✓ the dissolve
1belief
µion
.

change the
action
perception

eg ,
justify smoking
I already bought)
brand A- brand B
scenario :
better
brandy model
4
law .

to neighbour)
the it is
most likely to
enjoy ear as
 that counters
•
people avoid information
their decision

investors to believe it is
• cause

tame leg when buying

different this ,

stocks)
growth

lonsomatism Bias

to views
-
stick prior
Disregard
-
new news

-
Base rates : more
weight
under -

react :
new evidence
-

stocks with low

Syr
return
dramatically
returners after
outperform high
even
,

risk
adjusting for
↳ investors have become encessinely
pessimistic 1 ? ? sali suna
kya ? )
 positive announcement
after earning ,

stock price does not move

high
enough
but gradually corrected .

just after announcement

Investors
buying
benefit .

longus value ediock

-

better to invest in

when low valuation ( overreaction theory)

shortens
returns neat 6 months
prediction of
ones
-
best
6 months
is previous

feel do well
launch P -1
company
✗ →

than ✗
better
company Y →
performing
IBM →
✗ →
employees dothought
ose
confirmation
product
well Bias
y
Microsoft →
L
devalue prospects of another
company
in fin literature
beliefs
① confirm four
weeks high may
breaking
52
② storks
investment
not make good
's
⑦ employees oveeuoncetrate on company
stock

ratio low returns

www.W.ve
PIE
high
→

in 32
years

high
Mr
→

in
32
years

light low →
low /
high
dividend
return
Illusion of control
influence the
Humans can control or

decisions
of businesses even though
cannot
they

• erosive Irade decreases returns

investors to maintain
leads
a

under -

diversified portfolio
to limit orders
•
cause
investors rise

maintain illusion to control

to