250 words and minimum of 2 references each discussion.
1. What does the efficient market hypothesis (EMH) say about securities prices, their reaction to new information, and investor opportunities to profit? What is the behavioral finance challenge to this hypothesis?
Do you personally believe the EMH argument or the behaviorist argument?
Introduction of DQ4
The efficient market hypothesis is an important concept, not only in Finance but also in this course. The behavioral finance challenge to the EMH is also very interesting and an important part of the reaction of stock markets to new information, both good and bad. Just look at the reaction of the stock market to the Malaysian Airlines airliner shot down………..the markets dropped significantly that day on a global basis, but the following day, they bounced back dramatically, wiping out most of the previous day’s gains.
Efficient Market Hypothesis
There are many empirically-based research studies proving, to the extent possible, that the EMH is real, and the market (stock market) efficiently reacts to new information, both good and bad, almost instantly when the information is released, or slowly over time, as the market ‘impounds’ the value of the information received into the stock prices. I am looking forward to your DQ postings related to the EMH……………do a Google search on the EMH, and you will be inundated with information on this subject.
2. Financial executives insist that there should be no separation between an individual’s personal ethics and his or her business ethics. “It’s a jungle out there” and “business is business” should not be excuses for engaging in unethical behavior. Many firms have ethics codes which are based on economically rational concepts such as integrity and trustworthiness, which guide the decision maker in attempting to increase shareholder wealth. Of course, some employees sometimes choose to not comply with their firm’s ethics code.
How do ethics codes apply to project selection and capital budgeting? What are the potential risks to a company of unethical behaviors by employees? What are potential risks to the public and to stakeholders? Please explain how Saint Leo’s core value of integrity is reflected in your answer.
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3. Briefly describe the agency problem that exists between owners and lenders. How do lenders cause firms to incur agency costs to resolve this problem?
Introduction to DQ6
This DQ goes all the way back from some of the initial parts of this course to the Contents section of M1.
To get us going, lenders are not involved in the day-to-day operations and business decisions made by the owners in running their businesses. Also, owners may not be making decisions, both short- and long-term, which are in the best interest of their lender(s) or that might affect a lender’s decision with regard to lending money to a business (or its owners). Hence, the agency problem exists in this type of relationship.
